These are my top picks for innovations that most benefit personal investors.

#6:  Decimal pricing.    Do you remember when stocks were priced in fractions?  Like 23 and 3/8?  This was not cool.  Not only was it clunky, but it meant that bid/ask spreads were usually stuck at 1/8 of a dollar per share, or 12.5 cents per share.  Luckily, today most investments are priced in decimals.  Some exceptions include bonds and the interest rates on most mortgages.  How archaic!

#5: Free online investment info.   Information used to largely come in paper form, and cost money.  Or you could pay tons of money for Quotron… really not practical.

#4: Discount online brokers.   My Dad used to pay $50-$100 per stock trade — over the phone with a broker.  Today some of my ETF trades are free, many of my trades average about $1, and my most expensive trades cost $8.

#3: Exchange-Traded Funds (ETFs).  ETFs fix most of the problems with mutual funds such as high(er) expenses and lack of intra-day trading.  ETFs also open up a wide variety of investment options including access to commodities, leveraged funds, and precious metals.

#2: Index investing.  Index investing brings two huge advantages.  First, incredibly low costs.  Second, maximum diversification.  Index investing has, and continues to revolutionize the investing playing field.

#1: 401(k)s (and IRAs).   Named after a once-obscure IRS code, 401(k)s, or 401Ks, offer investors decades of tax-deferred growth opportunity.  IRAs offer a similar advantage.  Finally Roth IRAs offer similar tax-deferral opportunities where the tax benefit is back-loaded.

When I wrote about computing stock betas in 2010, I had no idea it would be this blog’s third most popular topic. I wrote a handful of blog posts about stock beta, but my heart wasn’t in them.  Today, driving home from the airport, I was inspired to blog about beta for perhaps the last time.  Previously I held back and focused on the mechanics of beta computation, and the discrepancies I was seeing between various website’s beta values.  This time I provide an example beta-computation spreadsheet and don’t hold back on the math or the theory.  Before I launch into this final word on beta, here a few highlights.

  1. Beta is easy to find online.  Not all sites agreed on value, but the delta seems less than it was 2 years ago.   Why compute beta when you can simple look it up?
  2. Beta is less useful if it has a low R-squared.  Luckily, sites like Yahoo! Finance provide R-squared values.
  3. Even with a high R-squared, beta is not a very useful risk measure.  Standard deviation is better in many ways.
  4. In theory high-beta stocks (>3) should go up dramatically when the market goes up.  In practice this is often not the case.
  5. In theory low-beta stocks (<0.5) should be “safer” than the market.  Again not so true.
  6. In theory low-beta stocks (<0.5) should “under-perform.”  Not necessarily.

If you are still interested in beta, simply click to read the full-beta blog.

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Here I am in Las Vegas, staying at the Encore.  I’ve lost $297 today at the craps tables.  I’ve been using my “comp” card and out of curiosity asked the “casino services” representative why is a small-timer such as me even bothering to use my comp card at the tables.  He said that every player can get a comp, even if it is just a cup of coffee… all the way up to a private jet ride home.  I handed him my card and asked, “so if I keep playing like this for 3 days where do I fit on that spectrum”.   His answer:  “a cup of coffee… but please use the card.”

Hot dice!

Lady Luck?

The folks at the Wynn/Encore are exceedingly polite and professional.  Their job is to 1) make money for the casino, and 2) provide a positive experience for the customer while doing so.

So no private jet for me!  That said, I think I will quit using my comp card.  What’s in it for me?… nada.

I understand very well the rationale of the casino.  First, table games are expensive to operate… craps takes 4 dealers to run.  Second, the way I play is least favorable to the house.  I place pass line and come bets, and place odds bets on the points.  Other than tips, that’s it.  No “field”, no placed bets, nothing.  Given a thousand people like me the casino probably, on average, breaks even after expenses.

So why do they want my data?   My hunch is that players like me still fill a role.   We  seed the tables and have fun.  Some high rollers like that.   The guy next to me at one craps table walked away with $16,000 and change.  He mentioned that at one point he had $25,000, but he had lost a bit.  Still, he said, he was up overall.   I assume this guy rolled in comps.  He is the gambler casinos covet.   He tipped generously, perhaps $500/hour.

I have decided that my privacy is worth more than a cup of coffee.  (Perhaps I would have settled for a room-service breakfast for two).  I will try to keep a lower profile, but in Vegas that is a difficult game.  Cameras, RFID-enabled chips, facial-recognition software… good luck keeping a secret here.  But I’m gonna make them work that much harder, because that’s how I roll.

Stay tuned if you want to learn some of the worst craps advice I’ve heard in a while.  Until, then, best of luck!

Update:  The terrible craps advice?  To use “placed” bets rather than pure “odds” bets on numbers in order to get more “comps” and more “comps action”.  Follow this advice and you will see your $10 bet on “4″ pay back $18 instead of $20.  The $2 fee will get you about 2 cents worth of comps!  Plus you’ll get less action than you think because you’ll lose your money faster.

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