BI > OCTOBER 2001

The Beardstown Phenomenon

Promises Kept

It all began quietly enough. Sixteen women from the small, Midwestern farming community of Beardstown, Illinois, decided they wanted to learn about the stock market. And they decided that learning together seemed like a pretty good idea ....

May 30, 1998

Subject: Beardstown Ladies and NAIC

I just want to say that if it were not for the wonderful ladies of Beardstown, I would never have heard of NAIC or probably would never have taken an interest in investing.

I am a 50-year-old single parent who is the first in my family to invest in the stock market. I have been able to educate my son and other family members. Without the "Ladies" and NAIC, my fear and ignorance of the stock market would never have changed.

I love NAIC and the good work your organization does. I'm still a novice at the stock market but I'm now a better consumer because of my new awareness and I'm constantly learning. And isn't that what life is all about -- learning and sharing?

Thanks, NAIC. I love Better Investing!

And THANK YOU, Beardstown Ladies.

Sandra Brennan

Cincinnati, Ohio

Learning. Sharing. "Anybody can do this. We'll be happy to show you how." The adventure of these wonderful ladies may have started quietly enough, but that didn't last long. Their core message echoes every time an NAIC member helps an individual investor. Invite a friend? Like many investment clubs, the Beardstown Ladies open their doors to inquisitive guests on a regular basis. Visitors make the journey from the suburbs of Chicago and the plains of Iowa and Indiana. Some have crossed oceans to come to Beardstown just to see what this is all about. It's all about strategic long-term investing and taking responsibility for your own future. It's about caring enough to help friends start the journey, too.

The real story of the Beardstown Phenomenon got lost briefly in a media frenzy about two years ago. Due to an error, the club's long-term rates of return were overstated on the cover of its best-selling book, raising suspicions the club was misrepresenting its investing success. The emphasis on the accounting error caused many to miss the true significance of the Beardstown Phenomenon.

The morning after the story "broke," revealing that the ladies had made a mistake in calculating their rates of return, Betty Sinnock was making another routine appearance on behalf of the Chicago Chapter. BI Senior Contributing Editor Mark Robertson (then a volunteer with the Chicago Chapter) was in the audience. "As she always does, Betty proceeded to share the story and the core message of NAIC with hundreds in attendance," Robertson says. "Then Betty, with tears forming, took complete responsibility for the mistake that was suddenly getting so much attention. This Beardstown Lady clarified that the club's selection by NAIC as an All-Star Club was actually more about their educational efforts than about any performance figures."

A month later, on the same stage, Motley Fool Tom Gardner shared his thoughts on the media distractions. "Everybody is missing the point! The Ladies have been fundamental in introducing investors of all classes, ages, shapes and sizes into the greatest wealth builder of the 20th century. If their message has encouraged Americans ... to hold on to solid companies for the long haul, they've performed an incredibly valuable service." He further mused about "how well Wall Street would hold up under the same microscope."

The same Price-Waterhouse audit that confirmed the discrepancy in the rate of return published on the book cover also included a figure that established the Ladies' 14-year annualized return (ended 1997) at approximately 15.3 percent. This result outperformed five out of six actively managed growth funds. Where was the fanfare over this fact? As you'll see from the Ladies' current portfolio (see page 38), the investment club has selected some good investments. Perhaps more importantly, the club also has encouraged hundreds of thousands, if not millions, to do the same.

Quiet Beginnings

The Beardstown Business and Professional Women's Investment Club was formed in 1980 as a three-year educational program. "Just by word of mouth, we soon had 36 ladies with different opinions investing different amounts of money," says Betty Sinnock, 69, a charter member and the club's current recording partner. So many members and so many opinions, in fact, that it was a bit chaotic. In August 1983, at the end of the three years, the club voted to disband.

For several of those members, however, the original club wasn't an ending, but rather a beginning. The stock market knowledge they had acquired so far had piqued their interest. "When we disbanded, I felt like we were just beginning to learn," Betty says. "That's when I called the ladies and we talked about reorganizing the club." In October 1983, 16 ladies said yes to the club's second try, investing $100 each initially, then $25 every month. The ladies chose to limit the club to 16 members, all of whom would be investing equal amounts.

The second partnership proved to be a solid one. The ladies went on to demonstrate that 16 women -- most of them senior citizens at that -- from a small town in the Midwest could learn about the stock market. They learned to invest in quality companies and were rewarded. In fact, one of the leading ladies behind the club's reorganization was Betty Sinnock's late aunt, 81-year-old Margaret Greenman, who passed away in April 1987. "All of her money was invested in bank CDs, real estate and savings accounts," Betty says. "She learned from the club and very quickly started investing on her own. After five years, she had doubled her personal estate."

The partners quickly discovered how determined Margaret was to learn and succeed. "Margaret served on one of the club's first committees, and she recommended that they invest in Kellogg," Betty recalls. "Well, Kellogg hadn't done anything for those of us in the first group, so we chose to invest in another company. The next day Margaret called her broker and bought 300 shares. In 16 months the stock doubled, then nearly tripled. She sold her shares and bought a new car for herself."

Indeed, the Beardstown Ladies are tireless in their efforts to find good companies in which to invest. They like to buy shares in companies whose services or products they use, and some of the ideas for companies to study have had an interesting genesis.

One of those times came in the mid-1990s, when charter member Shirley Gross was critically ill. "Her heart had stopped three times within two days, and her doctor decided he wanted to insert a pacemaker that had two leads, one that would keep her heart from beating too fast, the other to restart it," Betty says. "Shirley was on the gurney, heading to surgery, when she asked the doctor for the name of the company that made the pacemaker.

"The next day, Shirley was sitting up in her hospital bed with a Value Line, doing a Stock Selection Guide. The company that made her pacemaker -- Medtronic, Inc. -- soon became a part of her portfolio. Later, the club bought the stock and it quickly doubled," she says.

Sure, it's a boon whenever a stock price soars. But all along the way, these ladies have been about education. When the club first formed, Shirley was the only one of the partners who was familiar with the workings of the stock market. "We consider Shirley to be our mentor. She subscribed to Value Line and The Wall Street Journal and graciously shared them with all of us, Betty recalls. Shirley passed away in April 2000. "We have lost four of our charter members to death -- Margaret Greenman, Lillian Ellis, Helen Kramer and Shirley Gross. We miss each and every one of them. We consider ourselves fortunate that Shirley's daughter, Susan Connors, took her mother's place in the club."

Just three years after the club reunited in 1983, members were involved in forming a local NAIC chapter. "Margaret took me to the first meeting and Shirley and I became charter members," Betty says. The NAIC Heart of Illinois Chapter was chartered in May 1987.

It was around that same time that the Beardstown Ladies' performance began attracting attention. In 1987 NAIC recognized the club as one of its Better Investing All-Star Clubs. It would be the first of six consecutive years that the club would be so honored. The ladies weren't accustomed to the spotlight. That was all about to change.

Charter Beardstown Lady Betty Sinnock has served on NYSE advisory commissions and is an officer of NAIC’s national volunteer board. She encourages clubs to use Better Investing’s Stock to Study to learn as a group and reminds NAIC investors that “we buy to hold, but not to forget.” The club’s portfolio (see below) suggests selectivity and long-term caretaking.

In the Spotlight

In September 1991, the television news program, CBS This Morning, was looking for a club that would exemplify the growing belief that anyone willing to make a commitment to stock study and long-term investing could succeed in the stock market. "They were looking for a club that would show you didn't have to live in a big city to be a successful investor," Betty recalls.

The ladies were featured in a segment that aired on Sept. 4, 1991. They couldn't have known the investment phenomenon their story would create. Their little town, population 6,200, was at the center. "It was such a popular segment that CBS This Morning asked us to come back," she says. The ladies made their second appearance on Jan. 2, 1992.

"At the very beginning of the show, it was announced that in 1991 you could have earned 7.3 percent in bank CDs, and that the Dow and the S&P were in the 20s, while the Beardstown Ladies had a 54.4 percent return," Betty says.

"That was the first time we had ever attempted to figure our return," she recalls. "That's what really got the attention of people nationwide. Many of them wrote to us, wanting to join our club or wanting us to invest for them. We were as gracious as we could be in declining their requests. We told them that we weren't money managers or brokers, but we'd be happy to share what we'd learned with them."

Though it was the promise of spectacular returns that was grabbing people's attention, in the minds of the Beardstown Ladies the attention was still serving its purpose -- to spread the word that ordinary, everyday people could become successful investors. "Our message has never been to try and say that you could make a killing in the stock market," says Buffy Tillitt-Pratt, 48, the club's junior partner.

"Investing in the stock market is not about just buying stock in a company because a friend or neighbor -- someone with the Midas touch -- bought it. It's that NAIC stock study tools can teach anyone who can do fifth-grade math how to analyze a company," she says. "It's not about how much money you can make as an investment club. It's about how much you can learn, the empowerment that you feel when you realize you can analyze a company on your own.

"Sure, there are outside forces involved and things may not go your way," Buffy says. "But with the NAIC approach, you know that you've made more than an educated guess when you plunk your money down. There's something behind it."

Etched in History. Doris Edwards shared the news that the Beardstown Ladies had been featured in a history book at their June monthly meeting, which was open to the public. The coming edition of Prentice-Hall’s history text for high school students includes a reference to investment clubs and the impact of the Beardstown Ladies.

From Three Rs to Three Es

In fact, the Ladies were pleased that they had not only succeeded in fulfilling the "three Es" that the club was founded on -- education, enjoyment and enrichment -- but through their 15 minutes of fame, they had had the opportunity to spread the word in the hopes that other people would follow their lead. They thought it was over. But it had really just begun.

Two years later the ladies were invited to put together a video titled The Beardstown Ladies: Cooking Up Profits on Wall Street. "It was the fall of 1993 when the video came out," Sinnock recalls. "It received excellent reviews, and (charter member) Maxine Thomas and I appeared on a couple of national television shows. A producer saw it, called the video producer, and a book deal was arranged before we even knew about it." The Beardstown Ladies' Common-Sense Investment Guide (Hyperion) -- destined to become a best-seller -- was born in January 1994.

Ironically, what became a blockbuster almost never was. "When we were first asked to do the video, we almost said no," Betty says. "We were a group of ladies from a small town and we didn't want to do this for our personal benefit. It was a surprise to us that anyone would want to hear what we had to say. So, at our meeting, we voted no on doing the video. Then Doris Edwards reminded us that our first goal was education and that the video was exactly what we should do -- share what we had learned. The second ballot was unanimous."

The media attention accelerated. "Television stations would fly us to New York or California for a four-minute segment," Betty says. "For us, coming from a small town, it was all the more exciting. Maybe a little frustrating and amazing, too.

"In December 1994, Phil Donahue flew 13 ladies and our broker to New York to appear on his show to promote the first book. Six of the ladies had never been to New York City, and two of the ladies, in their 70s, had never flown before. It was a fantastic experience."

Those experiences would be among the first of many that would strike the Ladies as running against the grain, as contradicting the very essence of what they stood for -- saving and investing. "As we were being chauffeured around in limousines, I remember thinking, 'we don't spend money like this,' " Betty says.

They also experienced the downside of fame. "It gets a little stressful," she says. "In the beginning, Shirley and I were the spokespeople. Because of her heart problems, Shirley couldn't fly. So after the video came out, Maxine and I traveled to California to appear on the Home Show and later we returned for the John and Leesa's Hollywood Show.

"As part of the book's promotion, we were scheduled to be in a different city every day for 14 days. We were doing several interviews a day, for the print, radio and television media. It got pretty exhausting.

"That first week, we lived on peanuts from the airplanes. It wasn't that we weren't staying at nice hotels, but we were never there when the dining room was open.

"One night we were really hungry. When we got to our hotel, the restaurants were closed. We walked into our room and there was a basket of cheese, fruit and meat with a bottle of wine. We thanked the good Lord for taking care of us."

Indeed, the schedule was grueling, and it was destined to stay that way for a while. "The first two weeks of the book tour were so successful that a third and fourth week were planned," Betty says. "Then, when our second book came out, four weeks of publicity were part of the initial plan. We decided to divide up into two teams who would each take two weeks of the tour. It just escalated from there. I was traveling nearly four days a week."

The Beardstown Ladies' Common-Sense Investment Guide was translated into seven languages on the heels of best-seller status. Even so, their celebrity hadn't truly sunk in. "It wasn't until the groups of people coming to hear us talk began to grow that we finally began to take in what was happening," Betty says. "At one point we were asked to do a program for the Smithsonian. Every time I talked to the people from the Smithsonian, the venue had changed because they needed more space to accommodate all of the people. Finally, we ended up in the auditorium of Washington University, where 1,500 people had made reservations to hear us speak.

"For the first time, I felt that this must be how a celebrity feels. We'd been driven to the university where we were about to speak. It was misting when we arrived and the sidewalk was filled with people waiting to get into the auditorium. Many people told us that we had motivated them to start an investment club."

The number of investment clubs joining NAIC doubled and then tripled, with clubs forming at the rate of about 40 a day by 1998. Still, the Ladies realized it was difficult to measure their impact. "We wish we had an idea of how many clubs we have inspired," Betty says. "For us, this was what it was all about -- sharing what we had learned to help others."

The club members had begun sharing what they had learned long before the video and the book, and would continue to do so long after the hype died down. "Once NAIC recognized us as an All-Star Club, we began receiving phone calls from investors who wanted to attend our meetings just to observe," Betty says. "Pretty soon we had guests at every meeting, and we decided to limit our open meetings to three times a year. February, June and October are our guest nights. Many people have returned two or three times and tell us that they learn something new each time they visit. (Editor's note: Guests who plan to attend an open meeting are asked to call the Beardstown Chamber of Commerce secretary in advance.)

"In October 1997 we had 250 guests at our meeting, including a Japanese television crew and Fox TV Network out of Chicago. Previously, we had had another TV crew from Japan, one from Germany and one from the United Kingdom," Betty recalls.

Media Backlash

The following spring, March 1998, the Ladies' annual return -- the 23.4 percent featured prominently on the cover of their first book -- came into question. After checking the figures, Betty realized that the 23.4 percent return was for a two-year period -- not the club's first 10 years, as she had first thought. Time magazine suggested that the country "jail the Beardstown Ladies." Other news outlets were just as unkind. "I felt very bad, because I was the one who had made the mistake," Betty says. "And we really had to eat crow."

The media backlash from the mistake took its toll. "The numbers of people contacting us dropped. There was a lot of very negative press, but there were also lots of letters of encouragement and thanks," she says. "The file with positive messages was about five or six inches thicker than the negative file. There were a lot of clubs that really supported us, that took the time to send us notes of encouragement and inspiration."

Buffy Tillitt-Pratt remembers those times vividly. "It felt like the world was disappointed in us, and we were disappointed, too," she recalls. "Everything happened so fast. People wanted us to be these icons, and we really didn't aspire to that. Our whole purpose was to show others that anybody can learn how to analyze companies."

The Real Purpose Shines Through

The times were tough, but the ladies were confident that in their real purpose. "We had worked hard to instill the belief that it's necessary to invest for your future, to set goals and have a plan to meet them," says charter member Carnell Korsmeyer, 74, the club's senior partner. "Many, many people wrote to us who had recognized that that was the message of the Beardstown Ladies."

As quickly as the media hype had begun, it dropped off. "Once we discovered the error in our return, our publisher dropped us," Betty says. Since then the club has declined to focus on its returns. The members would rather speak to those investors who are interested in their true message -- getting a stock market education and investing for the long term. That message is still getting through, loud and clear.

"Even now, we get a lot of letters from clubs who say, because of you, we're so encouraged; because of you, we started a club," says Carol McCombs, 52, the club's financial partner. "That's really awesome; that's what we're in it for, to tell other people what we've learned. We have a better nest egg for our retirement, we're enjoying ourselves, and we've learned." Those letters are echoed by the dozens of calls NAIC fields every month from new investors who mention that they have been encouraged by the Ladies' message.

Their celebrity status has subsided to a more comfortable level. The Ladies still host an average of 20 to 30 people from three to four states at their three yearly open meetings. They still travel and speak whenever and wherever they're invited. The club has taken a particular interest in working with and speaking to young people, from elementary school through high school ages.

The Value of NAIC Membership

"When people ask us how to get started, we encourage them to call NAIC," Betty says. Our broker, Homer Reiken of A.G. Edwards, suggested that we join NAIC, and we feel it's the best advice we have ever been given. Once we joined we worked hard, learned the tools and the principles, and followed them. We also have 100 percent participation of our partners. That is the secret to our success."

The promise is simple: Patience, persistence and a willingness to do the homework lead to success in the stock market. "The Beardstown Ladies dispelled the myth that you have to be wealthy to begin investing," Betty says. "All it takes is a little discipline. You've got to get into the market and stay there."

It's a message that will continue to touch the lives of people. "When people say, 'you inspired me and I'm so glad I took the chance,' that's the most important part of what we've achieved," Buffy Tillitt-Pratt says.

Promises Kept

Learning. Sharing. Giving. Saying "yes." The Beardstown Phenomenon is a magical part of NAIC's first 50 years. These wonderful ladies are part of history, and they're helping to build successful investing futures today just as they have been doing since the early 1980s. The promise isn't about a record return -- it's about financial empowerment. "Anybody can do this. We'll be happy to show you how."

Promises kept.