Investing With Due Diligence

Bernard L. Madoff AP/New York Times

This column was written by CBS News Early Show Co-Anchor Harry Smith.
"Due diligence" are two words you hear thrown around a lot.

They basically mean, "Did you do your homework?" Did the Major League baseball team really look into the work habits and injury record of the pitcher they just signed for millions of dollars? That kind of thing.

While due diligence has crept into our everyday vocabulary, the idea of it goes back to the early 1930s

Due diligence was part of the reforms that took effect after the great stock market crash of 1929. It's a means of insuring that if you buy a stock, for instance, it is what it claims to be.

But the Truth in Securities Act of 1933 was also designed to insure that investors wouldn't get bilked by people to whom they were entrusting their money.

So if you invested in a hedge fund, for instance, and they bought Madoff and you lost your shirt, you might want to think about suing the hedge fund.

The funds that did their homework didn't buy Madoff because his returns were, yes, too good to be true.
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