Trading costs are probably not as inexpensive as some believe, nor as expensive as others have suggested. Trading costs are large enough to merit the focused attention of any investor. To some extent, they can be controlled. Such cost control (or lack of same) can profoundly affect long-term investment success.

Investment managers who perceive trading costs as small will formulate an investment process independent of the trading process. This encourages a convenient but false view that trading is an unimportant component of the investment process. Disappointing investment performance is often the result.

Insightful trading cost measurement requires a sequential tracing of investment ideas from manager through trader to implemented portfolio. The search is not for a meaningless proof of “best execution,” but for areas that need improvement. The results will not necessarily show up in lower commissions or even low measures of trading costs. They will, however, translate into improved investment performance.