By Mark P. Cussen

If you would like to participate in some of the growth of the market without risking your principal, there’s a relatively simple strategy you can use to do so. It requires a basic knowledge of options and bonds. For simplicity’s sake, we’ll use a hypothetical portfolio of $100,000 to show how this works. First you must establish a time horizon, such as seven years. Then you will go out and find a bond that pays a rate of interest that’ll grow back to your original principal amount over the next seven years. It may be wise in this case to choose a stable corporate bond with a high rating that pays a higher rate than a CD or government security. For example, if you could find a new corporate issue that pays 7%, then you would need to invest approximately $70,000 in them in order to receive back $100,000 in seven years. The level of safety that you require from the bonds will depend upon your risk tolerance; those who cannot afford to lose their money should probably stick to government bonds or CDs, while more adventurous investors could benefit from higher corporate rates. Even preferred stock could be used for this part of the strategy if the higher risk and volatility is acceptable. The second part of the equation involves buying call options on the market index of your choice. Most banks and insurance companies that use this strategy to produce indexed annuities and CDs buy calls on the S&P 500 Index, but any index can be used. But the remaining $30,000 of your portfolio will go toward buying as many calls on the index of your choice as possible. For the uninitiated, call options are derivatives that can be purchased by bullish investors on a stock or index. If the price of the stock or index rises, then the value of the call option will increase substantially, and vice-versa if the price of the underlying investment falls. Therefore, if the index drops in value, then the calls will expire worthless, and you will be left with your initial principal at the end of seven years. For this type of strategy, you would buy a kind of call option known as a LEAP (Long-Term Equity Anticipation security). Traditional options expire within one year, but LEAPs can last for up to three years. Ultimately, the idea here is to reap the profit from the rise in the derivatives’ value during the seven years that it will take to recoup your principal. If the index posts a solid gain during that time, then you’ll see a dramatic rise in the price of your LEAPs. Depending on how much the index rises, you could conceivably double your money from the LEAPs and still get your principal back as well. This would leave you with perhaps $160,000 at the end of the seven-year period-and your initial investment was never at risk!

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By Philip Brewer

All the cool kids have credit cards. What if you don't? What if you are so young, so poor, so uncool that you can't get one? Do you have to stoop to paying for your food with actual money? Not any more! These guys have the cure for swipe envy!

Look at the poster in the picture. This fast food company (name slightly obscured) is marketing their paid-value card to people who can't get a credit card, but wish they’d one so bad that they'll settle for a paid-value card that kinda looks like a credit card.

Of course, I understand the attraction to the merchant of a paid-value card. They've already got your money, so they're pretty sure you're going to buy stuff from them. (And, if you don't, that's okay too–see above where they've already got your money.)

From the point of view of the purchaser, a paid-value card is a dead looser:

• You take perfectly good money that you can spend anywhere, and turn it into non-money that you can only spend at one place.
• You miss out on the opportunity to earn interest until you spend it.
• Most paid value cards charge “inactivity” fees (and other fees) to make it easy for them to keep the money that you've given them without having to provide any goods or services.
• You have no protection in the event the company declares bankruptcy (or, for that matter, in the event the company just decides that they'd rather keep your money and not give you anything).

Now, the disadvantages of a paid-value card are pretty obvious. The only reason I have the ability to envision wanting to get one is if I was paying for someone else's food, and worried that if I provided cash, the guy would blow it all on something like bus fare or laundry. (Of course, it doesn't really work even for that. The guy who would really rather spend the money on something frivolous like textbooks can always find someone who wants food to buy the paid-value card, perhaps at a small discount.)

I feel sorry for the guy who's so ashamed of not having a credit card that he'd fall for a marketing ploy like this. It also offends me to see companies behave this way–I couldn't patronize a company that ran an ad like this. I expect, though, as the credit squeeze makes credit a lot harder to come by (not just mortgages), we'll see more and more ads like this, marketing to the folks with swipe envy.

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Filed under: Bad news, Industry, Consumer experience, Competitive strategy, Google (GOOG), Yahoo! (YHOO)

Yahoo! (NASDAQ: YHOO) has had several opportunities to “fix” itself recently. One was its new Panama search technology. Shareholders were eager to see it work as a superior competitor to Google (NASDAQ: GOOG). So far, it has barely moved the needle.

Some analysts hoped that the company’s new management would cut costs to improve margins. A figure of 20% of the staff has been recommended. But, if anyone at Yahoo! has been pushed out beyond a few management types, no one knows about it.

Yahoo!’s hopes now appear to ride on the back of superior targeting for online display ads. Delivering marketing messages based on the user’s behavior is the “next large thing” for world wide web advertising. Unfortunately, other web portals and Google have their own ad-serving and behavior-targeting products.

What the problem boils down to is that the market still tends to value Yahoo! on its ability to get consumers to use it to search the web. Yahoo!’s piece of the search market is a proxy for its success or failure.

The new comScore search engine figures for November are out, and Yahoo!’s piece of that market fell .4% to 22.4% from October. It might not seem a lot, but at this rate, it would not be many months before Yahoo!’s share of market falls below 20%.

Yahoo! stock is having trouble holding $24. In late October, things seemed more promising and Wall Street believed the company would do something significant to change its business for the superior. The stock traded at $33.99.

It won’t be back there again soon.

Douglas A. McIntyre is an editor at 247wallst.com.

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