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My uncle Oscar was a scrupulously honest man.

I mean that quite literally.  Oscar, an accountant by trade, was a quiet, dignified, self-made man who in certain crucial ways resembled the movie star James Stewart.  Tall, thin, a little stooped from bending over ledger sheets, he exuded the same aura of good sense, integrity, and belief in fair play and hard work that marked so many of Stewart's best films, from Mr. Smith Goes to Washington to It's A Wonderful Life.  Another example of this type is the late children's show host Fred Rogers, a third slender, quiet, utterly honest man from Western Pennsylvania, and thirty years after I left Pittsburgh for good to settle in Massachusetts, I have to wonder if it's a regional type.

Regardless, Oscar was honest to a fault.  A bookkeeper before he received his draft letter in the spring of 1942, he was quickly plucked from the ranks and assigned to the Army Air Corps as an auditor in the Inspector General's office.  There he was sent to school to become a CPA, and after graduation he spent the bulk of the war at Wright Air Force in Ohio rooting out the waste, fraud, and financial abuse that seems to go hand-in-hand with armed conflict.  His tour was extended almost a year after V-E Day because he was so good at what he did, and when he finally did return to civilian life in 1946, he was a WO-2, a significant achievement for a nearsighted, rail-thin accountant who'd had to leave school at sixteen to help support his family.

Oscar's sterling character, intelligence, and work ethic served him well after the war, too.  As I've mentioned before, he was taken under the wing of George Main, the accountant who helped David Lawrence spearhead the Pittsburgh Renaissance of the 1950s and early 1960s, and by the time Mr. Main retired, Oscar was a partner at Main, Lafrentz & Co.  By the time Oscar in turn retired in the late 1970's, he was the senior partner in the Pittsburgh branch, and so respected that he had no problem working as a financial consultant for a pair of millionaires his sister Betty nicknamed “The Gold Dust Twins.”

He was also a lifelong Republican.  This shouldn't surprise alert readers of these diaries; my family were all Republicans of the Bob Taft/Dwight Eisenhower sort, back before the Party of Lincoln had devolved in the Party of Lunatics.  Oscar was far from a strident True Believer in anything, but he was a businessman who subscribed to the Wall Street Journal before it became a Murdoch mouthpiece, and he tended to vote for whomever he thought would be the best candidate to keep America's business climate healthy and sane.  

This meant that in 1980, he voted for Ronald Reagan. I didn't – I cast my one and only “conscience vote” for President for John Anderson instead of Jimmy Carter, and yes, I have regretted it ever since – but Oscar and the rest of the family voted Republican, as they had for years.  I wasn't happy when I found out, and there were some lively and less than polite dinner table shouting matches discussions over the next few years as I tried to bring some of Reagan's worst abuses to the attention of my elders, but the only one who seemed to be paying attention was Mum.

That is, until the day in the summer of 1981 when Oscar emerged from his study, paper in hand, shaking his head, and said to Mum, Betty, and me, “This doesn't make sense.”

It was right after dinner, which meant that Mum and Lou were scraping the dishes and putting them in the dishwasher, Betty was contemplating what excuse she'd use this time to get out of helping, and I was putting my magazine aside and getting ready to vacuum the floor.  Oscar had, as per usual, disappeared as soon as he'd finished his ice cream to read the Wall Street Journal and work for an hour or so before heading downstairs to watch summer reruns.  He usually didn't come back out of his study unless he was needed to settle one a squabble between his younger siblings, or perhaps discuss what we were going to do on Saturday morning.

We all looked up.  Mum said, "What doesn't make sense?"

Oscar frowned, brows furrowed in the way that meant he was about five seconds from pulling out a package of Chiclets and chewing one as a defense against anxiety.  "The President's tax plan.  It doesn't make sense."

I pricked up my ears at that.  I'd never liked Reagan, not from the beginning, and had loudly cried that anyone who thought he could simultaneously cut taxes, balance the budget, and spend the equivalent of the gross national product of several South American banana republics on military hardware was out of his mind.  I could have been singing grand opera into a wind tunnel for all the good it did, and hearing my staunchly Republican uncle admitting that this particular Ebay kitteh was not as described was something of a surprise.

"What do you mean?"  Mum set down her dish and wiped her hands on her apron.  

"Remember how the President said this tax cut would be good for the middle class?  Well, I can't see it."  He raised the sheet of ledger paper.  "I just worked out how much this tax cut will save you, Betty, and me over the year, including all the usual deductions, and the figures don't add up the way they're supposed to.

"Martha, you'll get about $250.  Betty, you'll get around $175."

He paused.

"I'll get about $2,000."

Mum's jaw dropped.  Betty looked bewildered.  I stared at him, stunned that the tax cut's true intent was so clear that even a man who'd voted for Herbert Hoover at the height of the Depression had to admit that the party he'd joined as a young man had told a blatant lie.

"That's nothing.  Nothing," said Mum at last.  She came around the counter and sank into a kitchen chair.  "That's a couple of outfits for work, maybe a Pendleton suit - "

"That's less than a suit from the Brownstone Studio for me," snapped Betty.  "You must have made a mistake."

"I ran the figures three times," said Oscar.  He chuckled softly, and not because he was actually amused.  "If they really think this tax cut is going to help people like you and Martha instead of people like me, they're a lot dumber than they look."

I bit back a rant on the chicanery of the modern Republican party.  It was a pleasant summer evening, after all, and the last thing I wanted was to ruin the mood by gloating.  

Oscar was right, of course.  Reagan's 1981 tax cut, like almost all Republican tax cuts since, has been promoted as benefiting the middle class but has been heavily skewed to the upper middle class and the rich.  This is why those who can afford to pay higher taxes usually don't, and those who can barely scrape together enough to stay in their homes have to support the whole apparatus of government on their increasingly swayed backs.  

It's an untenable situation, and though he didn't live to see today's budgetary mess, I can't help but think that Oscar saw what was coming thirty-two years ago.  He did hold his nose and vote for Reagan in 1984, but it is a fact that in the last two elections of his life he couldn't bring himself to vote for Reagan's hand-picked successor any more than he could bring himself to vote for Mike Dukakis or Bill Clinton.

That's right.  Even as I'd had my conscience vote for John Anderson in 1980, Oscar had his when he voted for Ross Perot in 1988 and 1992.  What he'd have thought of the mess in 2000 I don't even want to contemplate.

Tonight I bring you only one book, but it's a doozy.  The hugely influential tale of a bunch of female Davids who claimed to have taken on the Goliath of Wall Street and won, it proved to be yet another example of the reach exceeding the grasp:
The Beardstown Ladies' Common-Sense Investment:  How We Beat the Stock Market and You Can Too, by the Beardstown Ladies - the early 1990s were an odd time for American investors.  The Gulf War was over, there was a Democrat in the White House for the first time in a dozen years, and the dot com bubble was just beginning to gather momentum.  Increasing numbers of ordinary Americans were buying stocks, shares in mutual funds, and otherwise trying to assemble investment portfolios since old-fashioned pension funds were going the way of the Edsel.  And since Wall Street was, of course, dominated by professionals, most of the said ordinary Americans were not precisely doing well.

Then a book that said that with a little education and a dash of good old American common sense, ordinary investors could - and would, if they trusted the precepts followed by a group of smart but savvy middle aged women from a little town in Illinois.

These sixteen women, all solidly middle class, most either retired or about to retire, had known each other for years when they decided to pool their assets, their accumulated experience, and the acumen developed over their careers to form an investment club.  Starting in 1983, they started picking likely stocks, assembling a portfolio, and reinvesting in such a way as to maximize their wealth and their retirement savings.

One would think that they would have lost their collective blouses.  Far from starting with a big chunk of seed money, each chipped up but $100, with $25 per month thereafter.  They chose stocks according to what they saw and experienced (they bought Wal-Mart stock after someone noticed that the local Wal-Mart's parking lot was fuller than the local K-Mart's), and soon they were making enough money that the Beardstown Business and Professional Women's Investment Club was named one of the top such clubs in the country.  They made television appearances, a video, and by 1994 had been asked to share their secrets with the world.

The Beardstown Ladies' Guide to Common-Sense Investment:  How We Beat the Stock Market and You Can Too was precisely what the country had been wanting.  Chock full of investing tips, advice, and even recipes, it claimed that the Ladies had realized a spectacular return of 23.4% per year from their investments, almost ten percentage points above 14.9% return enjoyed by investors who'd confined their purchases to the blue-chippers in the Standard & Poor's 500 during that same eleven year period.

That's right.  A bunch of elderly middle class women from the Midwest had not only dared to take on the wolves of Wall Street, they'd made the trained professionals look sad.  Not only that, if their cover photo was any guide, the Beardstown Ladies (as they were now known) had not let success go to their heads.  They still wore sensible shoes and suits, shopped at the same polyester-rich clothing shops, and cut their hair in the same practical, wash & wear styles as they had before their stock market brilliance had become public knowledge.  One would never guess that these daughters of the heartland had figured out a way to make the ultimate rich man's game work for them.

For a few brief years, the Beardstown Ladies, who'd been very average women (some employed, some housewives) before their book hit the shelves of the Heck Piazza Discount Book Barn-A-Rama, could add "best selling authors" to their resumes.  Not only did the Common-Sense Investment Guide shoot straight to the top of the charts, eventually selling over 800,000 copies, three sequels (on retirement planning, creating a rainy day fund, and "investment wisdom," respectively) and ancillary products like audiotapes and videotapes promptly followed suit.  Thousands of average Americans formed Beardstown-style investment clubs, pooled their retirement funds, and waited for the money to roll in.

It was almost too good to be true.

I think you know what's coming.

The first inkling that the Beardstown Ladies might not be quite the latter-day Hetty Greens that they purported to be came in 1995.  That was when Eric Tyson, author of Personal Finance for Dummies and similar basic investment guides for rank amateurs who wished to avoid getting skinned by the Gordon Gekkos of the world, penned an article for the San Francisco Chronicle exposing a huge, obvious flaw in the Ladies' claims:  their investment club had never backed up its claims.

That's right.  Tyson had done a little digging and learned that the Beardstown Ladies not only had not the slightest scrap of documentation backing up those glittering 23.4% investment returns, their fund had never been so much as audited.  For all that their publishers, their readers, or they themselves knew, that figure could have been made up out of whole cloth.  If that weren't bad enough, Tyson revealed that unlike professional financial advisers, the Ladies failed to include standard advice like tailoring investments to fit the individual's overall financial goals (a comfortable retirement versus buying a house, or saving for the kids' education versus accumulating the funds to open a small business), ignored basics like the investor's individual tax bracket, and didn't factor in the ability of individual investors to contribute to a Beardstown-style club.

Perhaps worst of all, the Ladies did not once mention the advantages of putting some of their investment funds into a tax-deductible retirement account like a 401(k) as opposed to picking individual stocks.  When Tyson attempted to point out that the Ladies were depriving themselves (and their readers) of some significant tax benefits by failing to do this, the Ladies' spokeswoman brushed aside his concerns with a shrug and a statement about matching her employer's contributions instead of the maximum.

This was not the only question Tyson submitted to the Ladies that was basically pooh-poohed.  His concerns about tax brackets and documentation were brushed aside with statements like, "Our individual needs were not a factor in the selection of the stocks.  We didn't consider taxes," or assertions the club would not release its documentation since the Ladies had "chosen not to make our return an issue…we're not out to be bragging" - a statement Tyson deemed more than a little peculiar, all things considered.  After all, they'd published a book based pretty much on their club's rate of return being within shouting distance of that realized by legends like Warren Buffet or Peter Lynch, and if that's not bragging, then pray tell, what is?

Tyson's article should have ended the Beardstown Ladies phenomenon right then and there, or at least raised enough red flags to warn off the unwary.  However, the idea that a bunch of grand/motherly types from a small town in Illinois knew more about stocks than the hard-edged witches and wizards of Wall Street was a powerful one.  Tyson, who after all was competing for the same slice of the publishing pie, was largely ignored, and the Ladies (and their fans) continued to invest for fun and profit.

And then the entire Beardstown empire came crashing down in 1998.  

That was the year that Chicago magazine published an expose claiming that the Beardstown Ladies, far from achieving gains of nearly 25% per year, had actually averaged a 9.1% return over their first decade of joint investment, or five full points below the Standard & Poor's 500 for the same period.  Moreover, the alleged returns included the investment fees and the contributions the Ladies themselves put into the club every month, which not only made their returns look greater than they actually were, but made zero sense for such allegedly shrewd investors.  Was all their investment success based on similarly shaky ground?

Shocked, the Ladies hired Price Waterhouse in hopes of salvaging their reputations, only to be told by the latter-day equivalents of my uncle Oscar that Chicago was correct and they'd fallen short of their claimed return by nearly two-thirds.  The figures were considerably better if the time frame was extended to 1997, but the 15.3% annualized return was still two points below the S&P 500's 17.2% for the identical thirteen year period.

Needless to say, the Ladies were shocked.  Also shocked was their publisher, Buena Vista (later known as Hyperion, which was in turn a division of, I kid you not, Disney), which was promptly socked with a class action suit by angry purchasers who'd bought the Beardstown Ladies books in good faith and entrusted their savings to similar investment clubs.

It was not a good time to be from Beardstown, to say the least.

The lawsuit against Buena Vista/Hyperion eventually settled in 2002, with purchasers of Beardstown books, tapes, and video products receiving certificates entitling them to other Hyperion publications.  That the members of the class might not want another Hyperion book (especially one on finance) doesn't seem to have occurred to anyone involved.  

As for the Ladies themselves, their amazing success and equally amazing face-plant doesn't seem to have disturbed their average, ordinary, salt of the earth existences very much.  The investment club was still active as of 2006, despite the death of half the original sixteen, still met on a regular basis, and had attracted new members and occasional guests who remembered the original fuss.  I have been unable to determine if the club (or the Ladies) survived the 2008 crash, but given that they survived the dot com crash with far fewer losses than most, it's entirely possible that at least a few of them are still buying, selling, and cooking.

The moral of the story:  if it seems to good to be true, it almost certainly is, even if those involved are kindly middle aged matrons who look like your grandmother.

%%%%%

So, my friends - did you ever purchase a Beardstown Ladies book?  An investment tape?  Listen to the Motley Fool?  Wear dollar signs on your jacket?  Are you a kindly middle aged matron from Illinois?  Would you admit to any of the above if pressed?  I can't promise anonymity tonight, but if you want to confess, the talking stick is yours….

%%%%%

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Originally posted to Readers and Book Lovers on Sat Nov 23, 2013 at 06:00 PM PST.

Also republished by Community Spotlight.

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