How This Portfolio Makes Its Own Luck

A focus on the fundamentals give the portfolio the gift of time, which in turn lets luck work its magic.

Feb 22, 2014 at 9:00AM

The real-money Inflation-Protected Income Growth portfolio finished this week at $39,936.13, up nearly $10,000 in market value since its December 2012 launch and more than $340 since last week's update. In addition, while the S&P 500 is down about 0.7% so far in 2014, the IPIG portfolio is actually up around 1% over the same period. 

How has the portfolio managed to gain while the market dropped? In a word -- luck. But not just any luck. The IPIG portfolio relies on the type of manufactured luck available to investors who focus on the fundamentals and invest with time-tested, financially solid investing principles.

Manufactured luck in action
For instance, one of the first lucky breaks the iPIG portfolio caught came when Berkshire Hathaway (NYSE:BRK-A)(NYSE:BRK-B) decided to buy out Nevada's electric generator NV Energy in an all-cash deal. The announcement of that deal came only a few months after the IPIG portfolio bought its stake, enabling the portfolio to pick up a surprisingly large capital gain on the purchase.

Berkshire Hathaway's purchase price was more than NV Energy looked to be worth as a standalone company at the time the IPIG portfolio picked up its stake. It might seem strange for a company headed by noted value investor Warren Buffett to pay more than fair value for an investment, but in this case it probably made sense. There are significant overhead costs involved in running a utility, and NV Energy was worth more to Berkshire Hathaway because it could combine it with its MidAmerican Energy unit.

Did the IPIG portfolio know that Berkshire Hathaway was looking to expand its energy holdings? No. But at the time it found NV Energy, the utility had the makings of a solid investment based on its valuation, balance sheet, and dividend. It was the focus on those fundamental factors that led the IPIG portfolio to NV Energy in the first place. From the IPIG portfolio's perspective, Buffett's purchase was lucky timing on top of a reasonable investment.

Similarly, IPIG portfolio selection Air Products and Chemicals (NYSE:APD) has caught the eye of activist investor Bill Ackman. Ackman claims that Air Products and Chemicals could potentially double in the next few years with the right CEO at the helm. Did the IPIG portfolio know that Ackman would soon start investing in the company -- big time -- when the IPIG portfolio bought its stake? Again, the answer is a resounding no.

Instead, all that the IPIG portfolio knew when it picked Air Products and Chemicals was that the company had a healthy balance sheet and a great dividend history, and looked reasonably priced. Those factors were what led the IPIG portfolio to Air Products and Chemicals, and it was simply luck that the IPIG portfolio happened to already own its shares when the company caught Ackman's attention.

And in what might be the clearest example of the IPIG portfolio's manufacturing its own luck, the portfolio has seen an astonishing 77% gain in its shares of defense contractor Raytheon (NYSE:RTN). The IPIG portfolio bought Raytheon almost exactly a year ago, when the threat of defense sequestration knocked its shares down.

Did the IPIG portfolio know that Raytheon would find a way to strengthen its business even amid the reductions in defense spending growth associated with the sequestration? No. In what hopefully sounds like a broken record at this point, all the IPIG portfolio knew was that when Raytheon was picked, its shares looked reasonably priced, even assuming the sequestration took place as expected.

Raytheon's ability to "soldier on" in spite of the sequestration happened to be a pleasant surprise. The IPIG portfolio was simply lucky to have been invested as the company retooled itself to operate and thrive in that reality.

Can you make your own luck?
While the IPIG portfolio has received its share of lucky breaks, the only reason it was able to take advantage of those breaks was that it happened to be invested when they came along. A relentless focus on the fundamentals is what enabled the IPIG portfolio to buy when it did and hold on to be there when lady luck graced those companies with her presence

Nobody can guarantee that luck will continue, of course. But to the extent that investors have the opportunity to make a bit of their own luck, focusing on the fundamentals is a great way to give yourself the time to improve your chances of being there when that luck does arrive. If nothing else, you may find yourself with a portfolio that looks something like the IPIG portfolio, which closed on Friday looking like this:

Company Name

Purchase Date

Total Investment (Including Commissions)

Current Value
Feb. 21, 2014

Current Yield
Feb. 21, 2014

United Technologies

Dec. 10, 2012




Teva Pharmaceutical

Dec. 12, 2012




J.M. Smucker

Dec. 13, 2012




Genuine Parts

Dec. 21, 2012




Mine Safety Appliances

Dec. 21, 2012





Dec. 26, 2012





Dec. 28, 2012





Jan. 2, 2013





Jan. 4, 2013




Texas Instruments

Jan. 7, 2013




Union Pacific

Jan. 22, 2013





Jan. 22, 2013





Jan. 24, 2013




Becton, Dickinson

Jan. 31, 2013





Feb. 5, 2013




Air Products & Chemicals

Feb. 11, 2013





Feb. 22, 2013




Emerson Electric

April 3, 2013




Wells Fargo

May 30, 2013




Kinder Morgan

June 21, 2013




Scotts Miracle-Gro

Jan. 3, 2014








Total Portfolio




Data from the IPIG portfolio brokerage account, as of Feb. 21, 2014.

Why dividends rule
A key reason dividends play such an important part to the IPIG portfolio is one of the dirty secrets that few finance professionals will openly admit: Dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best.

With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

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.

Chuck Saletta owns shares of Aflac; Air Products & Chemicals; Becton, Dickinson; CSX; Emerson Electric; Genuine Parts; Hasbro; J.M. Smucker; Kinder Morgan; McDonald's; Microsoft; Mine Safety Appliances; Raytheon; Scotts Miracle-Gro; Teva Pharmaceutical Industries; Texas Instruments; Union Pacific; UPS; United Technologies; Walgreen; and Wells Fargo.

The Motley Fool recommends Aflac; Becton, Dickinson; Berkshire Hathaway; Emerson Electric; Hasbro; Kinder Morgan; McDonald's; Mine Safety Appliances; Teva Pharmaceutical Industries; UPS; and Wells Fargo and owns shares of Berkshire Hathaway, CSX, Hasbro, Kinder Morgan, McDonald's, Microsoft, Raytheon, and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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