Rational Investing

by Clark Davis

(This is the inaugural appearance of "Rational Investing" in the Springfield Business Journal. Clark Davis, of St. Louis, approached us with the idea to write the feature. He was at pains to point out that he and his company do not sell any financial or insurance products. But his experience in the field gives him the background to write about investing. He said his style is "warts and all" and that some of his comments will reflect on the mistakes he's made himself: "In 30 years I have made some doozies.")

In response to all the concern and tsk-tsking as a result of the Price Waterhouse audit of The Beardstown Ladies' Investment Club that revealed the 10-year investment performance was 9.1 percent rather than the 23.4 percent proclaimed in their best-selling book, what follows is the letter I wish I had sent.

To: Betty Sinnock, BLIC Treasurer; Keith Colter, Video Producer; Leslie Whitaker, Ghostwriter; CBS Moguls, TV Arbiters of Truth; Seth Godin, Book Packager; Walt Disney Hyperion Publishing Group; et al.

Dear Group,

Please excuse the fact that I am sending this in the form of a semi-chain letter, to be passed on to the next person on the list or copied and sent to as many of the involved as possible. To send out letters to everyone involved in this fiasco would wipe out my supply of stationery.

Betty, some people believe that, since you are the treasurer and spokesperson for the club, you should have known how to calculate the rate of return on the investments. Especially since you were out there helping hawk more than 800,000 copies of your book.

I prefer to think that you were either very naive or simply didn't do your homework on how to run the figures. But with your background in banking, I wonder. Did you honestly believe that you could take your two best years out of 10 and extrapolate them for a 10-year period? Could the attention and lure of big bucks have influenced you?

Keith, when you produced the video "Cookin' Up Profits on Wall Street," did you not wonder how rank amateurs could produce those market-beating returns? Ever think, maybe even fleetingly, "Could they be cookin' the figures?" Or was it just too neat a story to disturb with facts?

Hey, Leslie, most ghostwriters don't want to be haunted by bad facts. Did you pull a sheet over your head on this one?

CBS Morning Show folks, wasn't Betty just the sweetest lady? And s-o-o-o smart. She proved that investors don't need professional help to beat the market. (Please call me if you need someone to talk about a selected two-year performance number, just don't ask about '94; it was a bummer the kind of thing that happens in the real world.)

Seth, you might want to have an in-house training session for your editors, especially the copy editors. In the press of business it is sometimes easy to let basic procedures slip through the cracks. Maybe it was so noisy that day that it was difficult to hear you when you asked, "Who checked the sources and the stats?" You did ask, didn't you?

Hyperion folks, are you so far from the Disney mother ship that you couldn't see anything goofy about the numbers?

To you in the et al. category: How many of you accepted the story because you saw it on television or read it in the paper? Didn't your parents ever tell you not to believe everything you hear and only half of what you read?

Maybe the training sessions for Seth's folks should be open to all of you. How about if we hold it here in Missouri and talk about how to use a little horse sense?

Yours truly (figuratively speaking)...

What damage has all this done? In the long run very little. Just keep all this in perspective. Don't let any book, or self-appointed guru, convince you that the market will always go up and that you should always buy every stock on any dips.

We have been experiencing the greatest bull market in our lifetime. Far too many investors, mutual fund managers and brokers with limited experience have come to expect 20 percent-plus returns, in spite of the historic average return of 11 percent that the market has produced from 1925 through last year.

Markets do not go up forever, trust me. If you were an investor during '73-'74 you know how devastating and confidence-jarring a bear market can be. Be realistic in your expectations, invest with a selection process that will enable you to sleep nights if the market falls 20 percent, and stay your course not that of someone else.

(Clark Davis is a 30-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money management company. Questions or comments can be directed to him by mail via The Springfield Business Journal, 313 Park Central West, 65806 or by e-mail at clark@slia.com.)

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