>>"Btw, does anybody know the details about the scam called "The Beardstown Ladies Investment Club", which was exposed recently?"<<
The Wall St. J. reported that the Beardstown Ladies may have overstated their investment returns by an unknown (but probably significant) amount. This information comes from the Ladies' own disclaimer, although they are disclaiming the disclaimer itself. Here is an excerpt from the article:
"The disclaimer says that the ladies' annual return over the decade covered in the book -- which they have put at 23.4% -- 'includes the dues that the members pay regularly.' The disclaimer adds that 'this 'return' may be different from the return that might be calculated for a mutual fund or bank.'. . .
"In other words, the ladies' club apparently added its own monthly membership dues to the gains from stock appreciation and dividends in calculating the overall return.
"That's not exactly how, say, Vanguard does it. . . .
"For the Beardstown Ladies, the implications of the disclaimer are significant. During the decade they wrote about, their monthly dues averaged $400, for an annual total of about $4,800. In some of those years, the total value of the club's portfolio was around $30,000 to $40,000. So just the dues, if counted as appreciation, would have given them double-digit growth in those years. That might also explain why the club often seemed to outperform indices like the Standard & Poor's 500."
The article states that an independent firm was provided a copy of the Ladies' records, but wasn't able to calculate a rate of return. Evidently the Ladies failed to record their purchase prices on some stocks. How convenient! (I have to wonder how the Ladies managed to pay their taxes without tracking the club's cost basis.)
Perhaps the Ladies are onto something here. Maybe I should treat my own investments of principal as part of my "investment return" whenever I put new savings to work. That way, every time I buy a stock with fresh savings, I could record a nearly 100% instant return. While I'm at it, I could also count my employer's matching contributions to my 401(k) account as part of my investment return. That'll gin up my return by another 50% instantly and thus provide further evidence of my stock-picking acumen.
Using the Ladies' simple accounting principles, I'll bet I could generate a return of well over 150% per year, and then write a book! Heck, I could count my book royalties as part of my "investment return," which then would surely challenge Peter Lynch's record! In fact, with the Ladies' "new math" investment accounting, we can all become instant investment gurus (or "goo-roos," as Don might say) and start writing our own newsletters. |
