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Two Critical Investing Tools That Work Wonders

Last Friday was an awful day for Microsoft (NASDAQ: MSFT  ) shareholders, as the stock tumbled more than 11% after the company missed earnings and wrote down the inventory value of its Surface tablets. Despite that drop, the real-money Inflation-Protected Income Growth portfolio, which holds Microsoft shares, actually finished the week up $33.12 from last week's closing level.

On top of that, the iPIG portfolio still had a better than 15% gain on Microsoft's stock after Friday's close and has received more than $25 in dividends from it since picking the stock in December. There are two critical investing tools drove that huge difference between what Microsoft's stock did on Friday and how the iPIG portfolio has been performing with Microsoft as a pick: low expectations and diversification.

How those tools help
When Microsoft's stock was selected for the iPIG portfolio, its shares looked fairly priced even assuming the company never grew again -- ever. Those are pretty low expectations for one of the world's largest companies, and they're ones that Microsoft has easily exceeded, despite how this particular quarter fared versus its expectations. Just look at these key data points from the company's recent 8-K filing:


As of June 30, 2013

As of June 30, 2012


Quarterly revenue (in millions)




Quarterly net income (in millions)




Shareholders' equity (in millions)




Dividends per share




Source: Microsoft's 8-K filing on July 18, 2013..

It's because of the low expectations priced into Microsoft's stock when the iPIG portfolio purchased it that Microsoft's shares have made money for the portfolio even with this recent miss.

From a diversification perspective, Microsoft wasn't the only company with news to report last week, and strength elsewhere in the iPIG portfolio helped offset Microsoft's weakness. For instance, fellow iPIG portfolio pick Kinder Morgan (NYSE: KMI  ) gained a bit on the week, helped by growing earnings, revenues that beat expectations, and news of an increased dividend. Similarly, JM Smucker (NYSE: SJM  ) , also an iPIG selection, moved up on the week -- bolstered in part by its own 11.5% dividend hike.

Similarly, both parts of the iPIG portfolio's two-for-one railroad special of CSX (NYSE: CSX  ) and Union Pacific (NYSE: UNP  ) reported earnings this past week. Both companies showed earnings improvements compared with last year, and both businesses' shares rose in the week.

For an investor, it's the portfolio that counts
Microsoft's miss hurt the iPIG portfolio for the week, but strength elsewhere made up the gap. While it would have been nice to have sold before Microsoft's drop, the reality is that no investor can perfectly predict the future. With a strategy that encompasses those two critical tools of low expectations and diversification, though, an investor can better protect his or her overall portfolio from those unexpected drops. With those strategies key in its design, here's how the iPIG portfolio finished up last Friday:

Company Name

Purchase Date

# of Shares

Total Investment (including commissions)

Current Value
as of July 19, 2013

United Technologies (NYSE: UTX  )





Teva Pharmaceutical (NYSE: TEVA  )





J.M. Smucker (NYSE: SJM  )





Genuine Parts (NYSE: GPC  )





Mine Safety Appliances (NYSE: MSA  )










Hasbro (NASDAQ: HAS  )





NV Energy (NYSE: NVE  )





United Parcel Service (NYSE: UPS  )





Walgreen (NASDAQ: WBA  )





Texas Instruments (NASDAQ: TXN  )





Union Pacific










McDonald's (NYSE: MCD  )





Becton, Dickinson (NYSE: BDX  )










Air Products & Chemicals (NYSE: APD  )





Raytheon (NYSE: RTN  )





Emerson Electric (NYSE: EMR  )





Wells Fargo  (NYSE: WFC  )





Kinder Morgan








Total Portfolio



Source: The iPIG porfolio's brokerage account, as of July 19, 2013.

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Read/Post Comments (4) | Recommend This Article (5)

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 July 22, 2013, at 5:26 PM, AMDG4 wrote:

    You didn't say how iPIG defined low expectations: Was it decent P/E or M/B ratios? Or was it something else. Your chart probably should have included at the very least the P/E ratio on the date iPIG purchased it. By the way, is that really the name of your portfolio, iPIG? Or are you just pulling my leg?

  • Report this Comment On July 22, 2013, at 9:06 PM, TMFBigFrog wrote:

    Hi AMDG4,

    From a 'low expectations' perspective, one of the buy criteria for the portfolio is that it has to look between cheap and fairly valued based on some fundamentally-focused valuation technique. There have been multiple techniques used throughout the life of the portfolio, and there wasn't column space to go into details on each. As a result, only the Microsoft-specific example was directly mentioned in the article.

    And yes, the portfolio is called the "iPIG portfolio", with iPIG standing for for "Inflation Protected Income Growth". The portfolio attempts to build an income stream that grows at least as fast as inflation. There are no guarantees, of course, but so far, so good.

    Ordinarily, there are a few more explanatory links in the weekly review piece; I must have been out of it when submitting this one. Here are a few key links that may help with more background: (Overall portfolio introduction)

    Link to the portfolio's discussion board:

    Best regards,


    Inside Value Home Fool

    Disclosure: I own shares of Microsoft.

  • Report this Comment On July 23, 2013, at 1:36 PM, JDM62 wrote:

    Hi Chuck,

    Thanks for the great info!



  • Report this Comment On July 23, 2013, at 10:23 PM, kankemike wrote:

    Thinking about selling my JNJ for KMI, thoughts?

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Chuck Saletta

Chuck Saletta has been a regular Fool contributor since 2004. His investing style has been inspired by Benjamin Graham's Value Investing strategy. Chuck also can be found on the "Inside Value" discussion boards as a Home Fool.

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