Last week’s answer

I’m headquartered in Manhattan, but I was born in London in the mid-1800s and adopted my coronet logo in 1919. In 1955, I introduced the flip-top box. My revenues topped a billion dollars in 1968. In 1999, 76 of my brands (which include Miller beers and Kraft Foods) each generated at least $100 million a year in sales, 14 of them topping $1 billion a year each. The surgeon general is not a big fan of mine, but many long-term shareholders are. I settled with 46 attorneys general to pay more than $200 billion. I’m trying to change my name to Altria Group. Who am I? (Answer: Philip Morris)

Know the answer? Send it to us with Foolish Trivia on the top and you’ll be entered into a drawing for a nifty prize! The address is Motley Fool, Box 19529, Alexandria, Va. 22320-0529. Send questions for Ask the Fool, Dumbest (or Smartest) Investments (up to 100 words), and your Trivia entries to Fool@fool.com.

Meet NTT DoCoMo

NTT DoCoMo (NYSE: DCM) recently began trading on the New York Stock Exchange. A subsidiary company of Japan’s telecom giant NTT (NYSE: NTT), DoCoMo is the largest mobile Internet provider in the world, with a subscriber base in Japan of more than 40 million.

In its first week of trading in the United States, DoCoMo stock climbed nearly 40 percent, suggesting that management’s goal of creating attention for the company by listing it on international exchanges has already been achieved. We’re not impressed by companies using stock as marketing tools.

Instead, we’d rather see firms performing profitably and maintaining competitive advantages. To its credit, DoCoMo has done all of these things.

Should American investors consider DoCoMo? Maybe, but not at current prices. The company’s current valuation has many assumptions built in, such as that DoCoMo’s success in Japan can happen in other countries.

While DoCoMo has a technological lead over other companies throughout the world, and while its hold on Japan’s market seems assured for years to come, the challenges to replicating the success in other parts of the world are very real. You might want to add DoCoMo to your list of companies that are a treat to watch, that are completely revolutionary, but that are not attractively priced right now. It may be a worthy purchase one day.

Diamonds aren’t forever

Early in my investing career, I was offered the opportunity to buy “investment grade diamonds.” I was told they were projected to appreciate significantly. After reviewing the glossy promotional brochures, I noticed a small buried caution saying, “The investment value of these diamonds is only guaranteed while the package seal remains unbroken.” I questioned the seller about this. How could anyone confirm the value of these diamonds? After the salesman stammered through an attempted answer, I decided not to invest. I am much wiser for this! Â Karen Glasgow, Dublin, Ohio

The Fool Responds: Good for you. First off, it’s important to understand what you’re investing in before you commit your money. In this case, you’d want to be pretty familiar with diamonds. It’s also smart to steer clear of any investment presented to you as anywhere near a sure thing. If it seems too good to be true, then it is. If any investment opportunity was really so compelling, salespeople wouldn’t need to seek investors. Savvy folks would already have snapped it up.

401(k) ABCs

What’s a 401(k) and how can I get one? Â M.C., via e-mail

Most major employers today offer retirement plans to their workers, usually in the form of a 401(k) plan. The beauty of the 401(k) is that through it, your employer plunks the portion of your salary that you specify into the plan, and that’s pre-tax income. So if you earn $40,000 per year and manage to sock $6,000 away into your 401(k), you’ll have only $34,000 in taxable income to report. Your taxes will be lower, and you’ll have some pre-tax dollars invested for the future. All pre-tax contributions grow untouched by taxes until withdrawn in retirement. Money in a 401(k) can usually be invested in a variety of vehicles. We recommend index funds. If your plan doesn’t offer one, ask your administrator to add it.

Best of all, many employers match 401(k) contributions (e.g., 50 percent of the employee’s contribution up to a maximum of 6 percent of compensation). If your employer offers matching, take advantage of it  it’s free money!

Learn more about 401(k)s at www.timyounkin.com and www.fool.com/money/401k/401k.htm.

I’m interested in purchasing small amounts of stock as gifts for grandchildren instead of the customary throwaway gifts. Where can I find a list of companies that sell small shares directly to individuals? Â Kay Montgomery, Mobile, Ala.

One good strategy is to open a direct investment plan account with one or more companies (these are often called DRIPs or DSPs). You can learn about these plans and the companies that offer them at www.moneypaper.com, www.netstock.com and www.Fool.com/DripPort/WhatAreDrips.htm. Some newer (but often more expensive) options are companies specializing in gifts of stock, such as www.registerstock.com and www.oneshare.com.

Options option

Imagine you want to invest in Librarian Supply Co. (ticker: SHHHH). You can buy shares the usual way  or you can buy options. There are two main types of options: calls and puts. A call gives you the right to buy a set number of shares, at a set price, within a certain period of time (often just a few months). For this right, you pay a price premium. Puts are similar, but give you the right to sell shares.

If SHHHH is selling for $50 per share, you might buy “October $55” call options for it. Let’s say you snap up call options and pay $6 each ($600 total) for options to buy 100 shares of SHHHH at $55 apiece. If, just before your options expire, SHHHH is selling for $65 per share, you can exercise your options and buy 100 shares for $5,500. Then you can keep them or sell them for $6,500.

If you sell, you make a $1,000 profit, right? Nope. You paid a $600 premium for the options, remember? So your profit is down to $400 Â less, when you account for trading commissions and taxes.

Options are risky. If SHHHH stays at $55 or falls, your $600 would be entirely lost. The stock must top $61 per share  $55 plus $6  by October for you to profit.

Some folks like options because of the leverage they offer. They point out that with $1,000, you can buy only 20 shares of a $50 stock. Alternatively, that $1,000 could buy many options tied to hundreds of shares of stock. But with options, timing is critical. If things don’t go your way in a short time frame, your option will expire worthless.

Most options expire unexercised and worthless. Those most likely to profit from options are brokers who earn commissions on them. Options are really about buying time, not stocks. If you’re sure that SHHHH’s stock will rise, you’re probably best off buying its stock. Then, if it doesn’t behave as you expected, you can either sell the shares or hang on patiently.

Options are not for beginning investors, and many advanced investors steer clear, too.