Like what John Bogle said. However, cost is just ONE of the factors involved in successful retirement investment. Other very important factors are taxes (which requires good timing when taking profits out of investments which should be balanced by losses), the need to realize paper profits at some point before they disappear, and a rational way of handling losing stocks. For example, a stock, let's say PM (Philip Morris) has been going straight up and accumulating long term profits, when do we sell and realize the profits? A stock appears insanely undervalued and is purchased with the purpose of riding the turn around. How long do we wait before we decide this was not a good idea and take the loss? How about a stock with a great story behind it but no dividends versus a stock with a stable chart, a dividend of 12%, and a good story and numbers? And most important of them all, how to follow the portfolio long term. Another consideration in the cost category is the cost of trading. More

All of these are important everyday considerations in portfolio handling of retirement accounts. They also relate to need for additional money, which is related to expenses. I really and truly do not believe in fixed budgets, because all kinds of events happen that require funds to cover them. What I believe in is in a basic understanding of living with fixed income (pensions, etc...) and taking money out of specific, fully taxable not tax protected, accounts primarily from accumulated cash (dividends, etc...) when needed. This way the structure of the portfolios is kept basically untouched and ready for changes based upon market and long term considerations, rather than need for cash. I mentioned trading costs, and this can become significant if heavy trading is in progress. I have a philosophy of limiting the trading in portfolio stocks. Of course cost in terms of fees paid to wealth managers, etc... are important, but should something happen to you, the manager, you need a backup.

Oscar, yes to every point you make. At retirement, perspectives change. You want to extract some of the portfolio gains you have accumulated. You can make use of the dividends instead of reinvesting them, and also cash in some of those paper profits. In both cases you will have to pay appropriate taxes.

But this should not stop you from trying to realize the highest possible portfolio return you can, generate more than you take out which would enable taking even more out going forward.

You raise the question: when should I sell? That in turn raises the notion of stopping times.

Take your PM example. MO has been rising since the 70's, continuously outperformed the S&P500, and you are asking when should you sell? For instance, I might consider switching PM for MO. There is a reason MO separated from its tobacco business... Note that over the past 5 years, MO has had a higher CAGR than PM and is more stable.

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So, my answer concerning PM would be: don't sell, maybe switch to MO, or maintain positions in both. They both have this desirable quality: built in alpha. They both outperformed the index over the past 5 years, and in probability should continue to do so. These two stocks don't need much monitoring.

One of the easiest ways to gain alpha is just to buy it, as in PM and MO.

However, if you want to extract more out of PM (or other stocks for that matter) you could add the following procedure as illustrated in the chart below. Its design is not complicated.

.#1 PM

http://alphapowertrading.com/images/divers/PM_May24_1y_b.png

Your first intention is to hold PM for the duration. But, you can accept a profit on some shares with the hope of purchasing the same shares later on at a lower price. These decision areas have been marked on the chart. You will end up with the same number of shares, but with a higher profit.

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After a long move (long black line, which precedes a change in trend) you could sell within the pink rectangles and repurchase later somewhere in the green ellipses. This will increase your portfolio CAGR. Stocks have a dividend effect, prices tend to rise on dividend anticipation, the effect is less afterwards, but it won't stop a stock from rising.

The strategy described does not require to be precise, your initial intention was to hold on any way. An example: say under the first red ellipsis you sold around $82, then waited and repurchased the same number of shares at around $76 to be resold around $86... and so on. The stock might have gone from $83 to $88, but you would have added from $76 to $82 to the mix. Generating more profits than just holding, while reducing volatility and exposure. So, you would end up with more than the Buy & Hold with less risk. All to your advantage. Remember, you were ready to hold on PM's shares anyway, so why not add some spice.

Thank you Guy, what you suggest is in the general direction of what I am doing. I did exactly what you suggest in your last post with PM until it reached the highest level it had ever had at which time I kissed it good bye.

There are many ways to handle exits, one, as you suggest is never to exit permanently but just to keep buying and selling at specific intervals. Other systems may have firm sell ceilings. For example, KKR sells its investments when their price reach 2.5X of their cost. Not a bad system I would say. In other words they apply a ceiling to the growth of their investments and then sell gradually, not to disturb the price. Or exits could be done by rotating to stocks within the sector. For example PM, MO and Reynolds can be used in this rotation system. I kind of like this because no two companies in a sector are identical to one another. This allows the investor to exploit variations between the companies. PM is international, MO is only US and so on...

Oscar, to add to my previous post, I think your current setup and understanding of what you want and intend to do will help you generate more alpha. As said before, one needs to do more to make more.

Everyone faces the same price series. It will be in how you slice and dice these price series at the portfolio level over the long term that will make a difference. And it is up to the trader/investor to do the job in such a way as to assure himself that there is positive alpha generation in his trading/investing methodology.

Otherwise, they will underperform, it is as simple as that. No alpha generation, no outperformance, no real reward for all the work over all those years.

This goes for anyone wishing to achieve higher alpha and beat averages. You can buy some alpha built in like in PM and MO, and you can add to it by using trading strategies having alpha enhancers. There are a lot of strategies that can help accomplish this task.

True everyone is faced with the same data, price series, what you do with it depends primarily upon your personality and inclinations, and secondarily upon any additional information you may develop on the specific company. This second stage is of marked importance if you like to handle smaller, less well known securities. The truth of the matter is that absolutely everyone knows lots of (similar) data about the large issues like Apple. EMT may well apply to these issues. However small equities like FIG (Fortress Investment Group) are not well known by most investors, and very small companies like MC (Moelis & Company) are virtually unknown. It is entirely feasible to develop a degree of knowledge about these equities that is not shared by other investors. This provides a true edge in terms of trading. Dicing and slicing is truly a personal thing that must be dictated by the contents of the portfolio, your knowledge of its contents, and your personal preferences. More

The important thing is the degree of control and knowledge an investor may develop about his/her own portfolio. This provides a true edge that then may be used in any way the investor desires. This is particularly important at a time where there are widespread buys and sales of assets within companies, as is currently going on in many sectors but particularly in energy, chemicals, and I think soon to come health care and retail. As a result an old stodgy company, say OLN (Olin) buys a boatload of assets from Dow (who is repositioning itself for the merger with DuPont) and becomes a different company. In the example given, Olin purchased Dow's Chlor Alkaly business to become the prime producer in America as well as its Epoxy business. Of course Olin assumed a lot of debt doing this and has to go through a laborious integration process. Another example MPLX purchased Mark West and became much bigger and better, something that has not really registered with the investment community. More

Oscar, yes, and I see your points, but... I have a different view on the 4 stocks mentioned. I have this acid test that stocks have to pass before being included in a long term portfolio. It has for purpose to not consider stocks will weak future prospects and those failing to show built in alpha. By this is meant that stocks to be selectable need to answer some basic and measurable criteria. We have stats on over 200 years of stock market data to help us make the best selection we can, why not use this data and put some of those probabilities on our side?

Sorry for everybody else, but I will provide the rest of this post in a private message.