Stock Advice: A Piece of... Pi
by John M. Grund
The government continues to push the idea that mutual fund prospectuses, stock offerings and other investment documents should be written in plain English so that prospective customers can understand them.
Such regulations, which have been in place for a couple of years, have had an unintended effect, says C. David Messman, an attorney on the fund administration team at Wells Capital Management. "I think our portfolio managers understand the funds better now — what the policies and objectives are."
This demonstrates three truths about life, which also seem to hold in the sometimes weird world of investing:
1. If someone says something you don't understand, he may not understand it either.
2. People will go to great lengths to avoid asking what might appear to be a stupid question.
3. Only those people willing to ask stupid questions will avoid the potential confusion caused by realities No. 1 and No. 2.
An example: In 1897, certain members of the Indiana Legislature were approached by a physician named Edwin Goodwin who claimed to have trisected the angle, duplicated the cube and squared the circle and had his monographs published by the American Mathematical Monthly.
Goodwin came with a bill in hand that announced a precise solution for the value of pi — the ratio of a circle's radius to its circumference. By passing the bill, Goodwin claimed, Indiana could use the correct value of pi without charge in its public school textbooks and also charge other states a copyright royalty for using the number.
The bill passed the Indiana House unanimously but was tabled by the Indiana Senate after people who knew a little about mathematics pointed out that it was ludicrous. Indeed, the mathematics in the bill are so foggy different authorities have argued it says pi equals 3, 3.2, 4 or 9.2376. The Guinness Book of Records opts for 4, and lists the Indiana Pi Bill as the "most inaccurate version of pi." The American Mathematical Monthly, by the way, had never published anything by Goodwin.
This embarrassment to the Hoosier State could have been avoided, of course, if even one member of the House had asked for an explanation of the bill, or for Goodwin's references.
I suggest this year you resolve to ask more stupid questions about your investments and thereby avoid having an Indiana Pi Bill on your hands.
John M. Grund is senior editor of RedChip.com, a Web site with news, research and tools for investors in small-cap stocks.
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