Market gurus like Jim Cramer preach the benefits of broad diversification, something I think is good for investors too: if your goal is to produce returns approximately equal to the market averages. In other words, if you believe in diversification, buy an index fund. If you don't want to simply buy and hold index funds, broad diversification is unlikely to make sense for you.

I recently found a good summary of why combining diversification with stock-picking is a bad idea from an unlikely source: Michael Konik's The Smart Money, a book about an elite sports bettor who gambles hundreds of thousands a day on football -- and wins. Here, he explains why the elite gamblers don't bet on more than a few games each week:

I'm sober enough about the difficulty of betting sports to realize that gambling on seven pro games in one weekend is the sign of a sucker. The linemakers just don't make that many mistakes on NFL football, where all the information is widely known to everyone in the universe.

It would be impossible to sum up the problem with diversification in the stock market any better. Generating greater returns without taking greater risk requires the investor to spot instances of market inefficiency -- the stock market equivalent of the linemakers making a mistake. And even the best investors in the world can't find enough market inefficiency to earn exceptional returns while owning a lot of stocks.

What if politics was like the stock market and you could buy politicians you like and sell the ones you didn't without envelopes of sequentially numbered small money orders in the same Chinese handwriting or cold cash hidden in the freezer?

For those rich enough -- they can buy a politician or two. The rest of us probably could rent a couple minutes of time with a big campaign contribution, and get lots of promises from a politician. Knowing the integrity of politicians and the value of political promises I am not sure how good of an investment politicians turn out to be.

Maybe you are one of the people smart enough to pick up a couple of bucks around the office at election time with bets on who is going to win. I have to admit I lost the last political bet I made. Good thing it was only a buck. What if there was a stock market where you could buy and sell shares in the candidates? The candidates would move up and down every day and those of us who are financial analysts could quantify the likelihood of people winning based on how bets are placed.

Now I am not into horse racing, poker or sports betting; but I do have to check up on the political bets every once in a while. With real money on the line there is a big incentive to be right. If you do not like the odds you can jump into the market and take the other side of the action. So what do the bookies think is going to happen in the coming election? Well it appears that Clinton is the favorite for the Democratic nominee with 67.8% and the Republican Rudy Giuliani leads the GOP with 35%.

BloggingStocks's Tom Barlow is pretty sure that Harry Potter isn't about to meet his untimely demise, but a lof of gamblers aren't so sure: According to Bloomberg, "William Hill Plc, a London-based bookmaker, closed bets on Harry sacrificing himself at 2/5 odds on July 17, cut from an original quote of 33/1 in early July. Lord Voldemort, who murdered Potter's parents, is at 9/4 to kill Harry, and Professor Severus Snape is at 4/1 odds to murder him. The bookmaker took more than 50,000 pounds ($100,000) in bets on Harry's fate, the first time in the company's history it had ever bet on a book."

This seems kind of inane: People are gambling about what will happen in a fictional story that they haven't read yet, and only the author and a few insiders know what's going to happen in the latest Harry Potter, set to be released tomorrow.

But maybe others really do know? There have been reports of pirated copies showing up on the internet and The New York Times and Baltimore Sun have already gotten copies, reportedly through bookstores.

The strong odds that gamblers are assigning to the death of Harry combined with a general belief in the wisdom of crowds lead me to a conclusion: By this time tomorrow, millions of bookworms will be mourning Harry's passing.

More Harry Potter news

Tom Barlow: The Harry Potter Finance Quiz
Gary E. Sattler: New York Times bestseller list leaves Harry Potter out
Tom Barlow: Harry Potter ending: A water cooler cheat sheet
Zac Bissonnette: With Harry Potter done, is it time for Scholastic to sell itself?
Tom Barlow: Rowling safeguards Potter empire
Zac Bissonnette: Is the last book the end of Potter mania?
Tom Barlow: Harry Potter and the Pots of Gold
Barry Summerlin: Harry Potter doesn't even need Muggle marketing
Julie Tilsner: Not even Harry can save bookstores from their fate
Peter Cohan: Harry Potter and the Pot of Gold
Tom Barlow: Harry Potter and the Deathly Hallows: Will Rowling kill off Harry?

With March Madness on the books and the World Series a long way away, the world's gamblers need another race to follow. With Prince William newly single, the odds-makers are placing stakes on who England's most eligible bachelor might be courting next.

On the list, with fairly generous odds of 20-1, is reportedly rehabilitated pop starlet Britney Spears, who was rumored to have engaged in email flirtation with Prince William five years ago. Other potential suitors for William (and therefore possible heirs to the throne of England -- how frightening) include Paris Hilton, with 14-1 odds (!), and Heather Mills (formerly Heather Mills McCartney), who has proven talented at earning the love of beloved Englishmen and then dragging their names and fortunes through the muck.

I'm not a gambling woman by nature, but I must say these odds are not ones I'd take. I just can't conceive of the chances being all that good for a Britney/William union (or a Paris/William match-up, for that matter). By means of comparison, bookmakers have set odds of 30 to 1 on the Cincinnati Reds winning the World Series (300 to 1 for the Washington Nationals), and there are certainly fewer teams in Major League Baseball than there are eligible young women interested in Prince William's hand.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

Over the last few years, futures markets have become a hot topic, but informal betting pools have always been around. And if you play with the definition, the stock market is its own futures market. That's why stock prices leap or drop as rumors or upcoming products are anticipated by stock holders.

Apple Computer, Inc. (NASDAQ: AAPL) certainly bounces around a bit more than many other stocks as a result of speculation, particularly around upcoming products. But Bodog sports betting has taken the whole idea a step further and created a betting area for whether certain products will be released by Apple. Bets can be placed on whether the Apple iPhone will be coming out, and when. You can also bet on whether Apple will announce a bluetooth enabled iPod at Macworld Expo.

The money seems to be on Apple announcing a phone by April 20th. Bodog has the odds favoring that and a Macworld Expo announcement. For bluetooth enabled iPods, Bodog's odds are against it. It's certainly an interesting way of guaging what products might be on their way from Apple, and a heck of a lot more interesting (and profitable for some) than the usual rumormill.

Some other financial bets you can play the odds with are whether Yahoo! will try and buyout Facebook, or whether Yahoo! Inc. (NASDAQ:YHOO) chief Terry Semel will resign or be fired!

As part of a port securities bill passed by the House and Senate recently, online gaming in the US would be outlawed for foreign-based companies that offer online betting transactions in American currency. Though the comapnies are generally based in the Caribbean or Central America, they derive the bulk of their revenues from US gamblers. If this legialation is signed into law by President Bush, US gamblers will not longer be able to transfer money to foreign-based gaming companies using credit cards, checks, or electronic fund transfers. I guess gamblers could mail big wads of cash to their off-shore bookies. The legislation is designed to make it harder for terrorist organizations to move money around under the guise of legitimate businesses. Also, domestic gambling operations, such as those in the Gulf Coast region, would have fewer competitors for consumer access to real money poker.

PartyGaming, the world's largest online gambling company, indicated it would cease business operations in the US if this legislation is enacted, as would 888 Holdings PLC and Sportingbet PLC. Shares in PartyGaming have already plummeted by over half, closing recently at 84 cents. 888 Holdings in down by 26% and Sportingbet is the big loser, declining by 65% to close at $1.24.

The legislation seems also to prohibit many forms of sports-related gambling, including wagering on the games leading up to the World Series, as well as the monumental betting pools for the Super Bowl in early 2007.