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Last week was another strong one for the real-money Inflation-Protected Income Growth portfolio. The portfolio's value improved by a touch over $665 last week, to end the week above $34,000. For a portfolio that started in December with $30,000, reaching a better than 13% return in five months would ordinarily be something to celebrate.

In reality, though, that performance had a lot of help. Over the life to date of the iPIG, the S&P 500 has actually risen a bit faster, up a bit more than 14%. The iPIG portfolio's stellar performance owes a lot to that general market tailwind. Still, a fundamental truth about the market is that to get any of the returns from investing, your money has to be at risk and invested. And from that perspective, the iPIG portfolio has been incredibly successful.

Built on a solid foundation
While many of the iPIG portfolio's gains were aided by the market's meteoric rise, each investment in the portfolio was a calculated choice based on principles first laid out nearly a century ago. Benjamin Graham, the father of value investing and the man who taught investing to Warren Buffett, laid out those key themes in a book called The Intelligent Investor.

Those principles were simple: Through dividends, companies show their owners that they're truly making money. Through paying careful attention to valuation, investors better protect themselves from overly optimistic corporate forecasts and projections. And through diversification, investors can protect their overall portfolio even if (or more likely, when) an investment fails.

The iPIG portfolio was founded on those principles, and it's because investments compatible with them were available that more than 90% of the initial cash in the portfolio has been put to use. The market's recent run has been wonderful, but there was no way to know that it would happen before it did happen.

Indeed, while the iPIG portfolio has been lucky to invest when it did, it was in large part manufactured luck. The portfolio was designed in a way that it would have been invested with the same principles even if the market were falling, instead of rising. Indeed, if the market had been falling, it's quite likely that closer to 100% of the initial cash would have been invested, rather than 90%.

Buy stocks when they're cheap
For instance, energy pipeline giant Kinder Morgan (NYSE: KMI  ) was picked for the iPIG portfolio. But its shares took off before they could go from pick to purchase. As a result, that stock was never bought, and about half of the iPIG portfolio's remaining cash is currently reserved for it, hoping for a correction.

On the flip side, the iPIG portfolio initially passed on Emerson Electric (NYSE: EMR  ) , in spite of its great business and dividend history, because its stock price was above the portfolio's buy-below valuation. Yet when the market later offered up Emerson at a lower, more reasonable price tag, the portfolio snapped up shares.

Nobody knew for certain that Kinder Morgan would get away or that Emerson Electric would retreat to a reasonable buy range. Still, setting the valuation principles up front enabled the portfolio to act appropriately for the situation, no matter what the market would eventually do to those shares' prices.

Watch that dividend quality
Similarly, by putting quality controls around a company's dividend and ability to pay it, the iPIG portfolio was able to miss one of the largest recent dividend blow-ups, Pitney Bowes (NYSE: PBI  ) . The company slashed its dividend in half last week, but before that cut, it had a 30-year history of regularly raising its dividend.

The iPIG portfolio managed to sidestep that cut by not being invested. It avoided Pitney Bowes because the company failed two key dividend quality tests that the iPIG portfolio relies on when making selections:

  • Its payout ratio was too high, so its dividend did not look adequately covered by earnings.
  • Its debt-to-equity ratio was too high, so its dividend looked likely to be at risk if the company stumbled.

As it turns out, sitting on the sidelines proved to be a prudent choice -- but again, one that was made because of the portfolio's foundational principles.

Realized success
Instead of being caught in a dividend takedown, the iPIG portfolio received a $0.55-per-share dividend from defense contractor Raytheon (NYSE: RTN  ) last week. That increase was the company's first dividend at its new, higher payment level -- a level that was set after the iPIG portfolio bought its shares.

The key difference between Raytheon and Pitney Bowes? When picked, Raytheon had a mere 35% payout ratio and a debt-to-equity ratio of only 0.6, much more comfortable levels. There was no certainty to those of us on the outside that Raytheon would raise its dividend and Pitney Bowes would slash its payment, but those key ratios tilted the odds in that direction.

There's still nothing certain in investing, but having a solid plan that lets you actually invest money before you know what the market will do is a great foundation for success.

iPIG portfolio snapshot as of May 3, 2013

Company Name

Purchase Date

No. of Shares

Total Investment (Including Commissions)

Current Value

United Technologies





Teva Pharmaceutical





J.M. Smucker 





Genuine Parts 





Mine Safety Appliances















NV Energy















Texas Instruments





Union Pacific















Becton, Dickinson










Air Products & Chemicals 










Emerson Electric








Total Portfolio



Data from the iPIG portfolio brokerage account, as of May 3, 2013.

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Read/Post Comments (4) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 06, 2013, at 9:08 PM, asherjack wrote:

    Chuck - I've enjoyed watching your portfolio and reading your articles. I've purchase a few of the companies to balance by SA picks. Keep up the good work.

  • Report this Comment On May 06, 2013, at 10:05 PM, TMFBigFrog wrote:

    Thanks, asherjack. It's an honor to know that you're following & enjoying this portfolio. It's surprisingly more effort than I had thought it would be, but it's also a lot of fun to do. Here's hoping it's successful enough that the Fool keeps it around!


    <I>Inside Value</I> Home Fool

  • Report this Comment On May 06, 2013, at 10:20 PM, TheDumbMoney wrote:

    Do you account for dividends in the current value, and if so, just as nominal numbers or as reinvested?

    Nice income portfolio. Not sure I'd want both CSX and Union Pacific..., but I see you made each a half position likely to account for that. It still needlessly increases your commission costs to split the money like that though. I'd say you should only have bought one of them in a portfolio like this.

  • Report this Comment On May 07, 2013, at 2:03 AM, TMFBigFrog wrote:

    Hi TheDumbMoney,

    Dividends in the iPIG portfolio are collected as cash and then invested when there's both enough cash to justify a purchase and a stock comes to my attention that fits the portfolio's purchase criteria.

    In terms of the railroads -- you're absolutely right -- as you pointed out, the positions in those railroads are half-positions in each. In researching them, both looked reasonable, and I liked the way their route networks lined up to offer essentially coast to coast service without much overlap.

    Yes, again you're right that it did take two commissions to set that up, but even with that, the total commission was below 1% of the invested capital. The joy of discount brokers!


    <I>Inside Value</I> Home Fool

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Related Tickers

10/25/2016 4:03 PM
EMR $50.11 Down -0.20 -0.40%
Emerson Electric CAPS Rating: ****
KMI $21.32 Down -0.30 -1.39%
Kinder Morgan CAPS Rating: *****
PBI $17.44 Up +0.12 +0.69%
Pitney Bowes CAPS Rating: **
RTN $139.75 Up +2.09 +1.52%
Raytheon CAPS Rating: ****