TheStar.com | Business | Investing myths laid bare by this bear market:
The article starts off with a section on Cramer talking about his recommending Wachovia just before it collapsed (uh, remember Bear?), but in this case he blamed the CEO who Cramer believed did not have the correct info. It should be noted that Cramer did apologize in this case.
From this the jump to the idea that even the CEOs did not know what was going on is very possible. Which leads (at least I think that was the connection) the author to write that
"Complex financial derivatives such as credit-default swaps and collateralized debt obligations were not valued properly because they were not subject to the same visibility as publicly traded securities."At least partially true. Without a doubt everyone involved in derivatives did not know what risks they were exposed to. This is in part because of a lack of transparency, but also because of the high leverage that many derivatives contain where a small move yields very large value changes.
Want another so-called myth according to the article?
"Global diversification myth.Which while partially true is not exactly news. It does fit very well with the 2002 Butler and Joaquin article that showed that correlations increase in down markets.
We also learned that global diversification in recent years has been little help to investors. There was a time when markets around the world went in different directions, while economies in different countries did their own thing. But for years now it's been a global economy and markets increasingly move up and down in unison. When it comes to the world bourses, it is monkey see, monkey do. What you do get by investing abroad, however, is foreign-currency exposure, and that does add diversification.
Interesting stuff. Not sure if I would have used the term myth, but some good points.