When It's Great to Wait

For several months, pipeline giant Kinder Morgan (NYSE: KMI  ) was known as "the stock that might get away" from the real-money Inflation-Protected Income Growth portfolio. Right after its selection was announced, Kinder Morgan's stock price spiked well above the iPIG buy-below price, leaving the portfolio unable to buy shares until the market retrenched.

Sure enough, about six months later, Kinder Morgan's stock had fallen into that buy-below range, enabling the iPIG portfolio to pick up shares at a reasonable valuation. Since then, Kinder Morgan has performed adequately as a business, but not entirely up to the market's expectations. As a result, it currently holds the distinction of being the only iPIG selection with a negative total return. That's even true after the incredible market rally driven by the debt ceiling alignment since last week's portfolio update.

Still beats buying high
Still, the iPIG portfolio's net purchase price for Kinder Morgan of about $36.15 per share (after commissions) beats buying at the high of around $41, reached between selection and actual purchase. As a result of waiting for an acceptable price to buy, rather than staring down a drop of more than 10%, the iPIG portfolio's worst performer to date only shows a roughly 2.3% capital loss.

There are no guarantees in the market, and the iPIG portfolio's strategy of investing based on the combination of dividends, valuation, and diversification recognizes that reality. The result is a portfolio that's holding its own while sticking to its primary objective of generating an income stream that grows at least as fast as inflation. The Kinder Morgan story is just one of the ways the portfolio's strategy has worked to help it do well in spite of less-than-perfect execution.

Turning business challenges into investing successes
Fellow portfolio pick Hasbro (NASDAQ: HAS  ) tells a similar story. Shortly after being picked for the iPIG portfolio, Hasbro last January admitted a poor showing in the all-important Christmas shopping season. Still, the trend-centered nature of the toy business factored into the iPIG's original selection of Hasbro and helped reduce the chances that the portfolio overpaid for those shares. The 33% gain since purchase showcases the potential benefit of pricing in caution when investing.

Along the same vein, top overall performing iPIG pick Walgreen (NYSE: WAG  ) continues to soar and was the largest dollar gainer for the portfolio last week. When selected, Walgreen was in the process of recovering from a pricing battle with pharmacy benefits manager Express Scripts. There were open questions as to whether the Walgreen's business would recover, but when it was picked, its shares looked reasonably priced even if its former customers didn't all return.

In the intervening months, not only did Walgreen's business show signs of real recovery, but the company positioned itself as potentially one of the biggest winners of Obamacare. That combination drove Walgreen's incredible recovery, and by owning stock in what looked like a fairly priced business going through challenges, the iPIG portfolio rode the recovery to a better than 55% gain. 

Together, they make a portfolio
All told, there are 21 stocks currently in the iPIG portfolio, representing 20 individual positions. Each one of them represents the real strengths, weaknesses, opportunities, and threats associated with operating real businesses in the real world. Nobody really knows what the future will bring. By investing with the concepts of dividends, valuation, and diversification, and by being willing to wait for a reasonable pitch before swinging, an overall portfolio can be constructed that may well end up looking like this one:

Company Name

Purchase Date

Total Investment (including commissions)

Current Value

Current Yield

United Technologies (NYSE: UTX  )

Dec. 10, 2012

$1,464.82

$1,939.32

2.19%

Teva Pharmaceutical (NYSE: TEVA  )

Dec. 12, 2012

$1,519.40

$1,520.00

3.01%

J. M. Smucker (NYSE: SJM  )

Dec. 13, 2012

$1,483.45

$1,833.96

2.15%

Genuine Parts (NYSE: GPC  )

Dec. 21, 2012

$1,476.47

$1,808.95

2.73%

Mine Safety Appliances (NYSE: MSA  )

Dec. 21, 2012

$1,504.96

$1,936.44

2.23%

Microsoft (NASDAQ: MSFT  )

Dec. 26, 2012

$1,499.15

$1,922.80

3.2%

Hasbro (NASDAQ: HAS  )

Dec. 28, 2012

$1,520.60

$2,031.32

3.39%

NV Energy (NYSE: NVE  )

Dec. 31, 2012

$1,504.72

$1,990.80

3.21%

United Parcel Service (NYSE: UPS  )

Jan. 2, 2013

$1,524.00

$1,860.00

2.67%

Walgreen (NYSE: WAG  )

Jan. 4, 2013

$1,501.80

$2,343.60

2.15%

Texas Instruments (NASDAQ: TXN  )

Jan. 7, 2013

$1,515.70

$1,913.37

2.95%

Union Pacific (NYSE: UNP  )

Jan. 22, 2013

$805.42

$912.60

2.08%

CSX (NYSE: CSX  )

Jan. 22, 2013

$712.50

$873.80

2.33%

McDonald's (NYSE: MCD  )

Jan. 24, 2013

$1,499.64

$1,523.20

3.4%

Becton, Dickinson (NYSE: BDX  )

Jan. 31, 2013

$1,518.64

$1,886.58

1.89%

Aflac (NYSE: AFL  )

Feb. 5, 2013

$1,466.35

$1,776.06

2.13%

Air Products & Chemicals (NYSE: APD  )

Feb. 11, 2013

$1,510.99

$1,873.23

2.58%

Raytheon (NYSE: RTN  )

Feb. 22, 2013

$1,473.91

$2,075.22

2.86%

Emerson Electric (NYSE: EMR  )

April 3, 2013

$1,548.12

$1,837.92

2.5%

Wells Fargo (NYSE: WFC  )

May 30, 2013

$1,525.48

$1,579.16

2.81%

Kinder Morgan (NYSE: KMI  )

June 21, 2013

$1,518.37

$1,483.86

4.64%

Cash

   

$514.85

 

Total Portfolio

   

$37,437.04

 

Sourece: iPIG portfolio brokerage account. Figures current as of Oct. 18, 2013.

To follow the iPIG portfolio as buy and sell decisions are made, watch Chuck's article feed by clicking here. To join The Motley Fool's free discussion board dedicated to the iPIG portfolio, simply click here.

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