Strategic Fixed Income Investing: An Insider's Perspective on Bond Markets, Analysis, and Portfolio Management

CHAPTER 14

The Four Pillars of Trade Execution

Price is what you pay. Value is what you get.

—Warren Buffett

As with many things, there is always more beneath the surface when it comes to trading and managing portfolios. Fixed income, equity, swaps and alternatives—it applies to any security in any asset class. The details will just be slightly different from security to security. Let's take a step away from the sexy side of trading fixed income securities. That's right, fixed income has a sexy side. Everyone aspiring to make it in the business wants to be a portfolio manager. It's all glory, right? You always hear about famous investment managers having a great year or making the correct call to avoid the next catastrophe. The rush is always there. At the end of each day, you should know how you and your portfolios are doing. Are you outperforming your benchmark or underperforming, and why? These points are all true. But there is another side and these points do not always occur. In order to achieve your goals, after you put all your hours in on strategizing and security selection, you need to focus on another less-glamorous piece. I am talking about the physical activity of placing the trade. Strategy and modeling aside, there is much more to think about than just pulling the trigger on the trade. (Or in this day and age, tapping the “execute” button on your electronic trading system.) You need to think about the execution of the trade. This is where I narrow the field and think ...