Back in mid-March I had the longest email interview I’ve ever given with Money Magazine for their May issue and I think I got bumped.

Yesterday after my workout I drove over to Barnes & Noble with the excitement I used to feel as a kid opening that first pack of baseball cards for the season to see what they look like only to get to the article that I think I was interviewed for (they even wanted a picture) but they found better people for the article.

Very funny egg on my face.

Anyhoo, a couple of things this morning.

As a follow up to the stock picking post and comments from yesterday (great dialog, thank you) one reader asked “Isn’t the sector or country more important than the individual stock?” Well that is what top down portfolio construction is all about.

If right now is the right the time of the stock market cycle for a certain sector, a certain cap size, a certain style, and a certain country that probably leaves you with very few choices to choose from but the types of factors cited should put the wind at the back of all of the names that pass the “screen.” From there pick the one you think will make the best proxy. Of course picking is where you go through whatever you think is needed to analyze a stock.

It is also at this point where the decision of whether or not an investment product of some sort (like an ETF or something else) would be better than a stock for the given theme.

This process guarantees nothing but I think it makes it easier. If you agree (regardless of whether you are stock picker) then you are also top down, if you think otherwise you are bottom up. Nothing wrong with bottom up, there are obviously plenty of people that are very successful with it and chances are they think bottom up is easier for them.

The other item is that Christine Benz from Morningstar was on the Consuelo Mack Show over the weekend and her pick for The One Investment was the Dodge and Cox Balanced Fund (DODBX). She said it has not done well of late. In looking at the Morningstar page for the fund it has had a couple of periods where it lagged a couple of different benchmarks and for 2008 it is down 8.0% YTD through March 31 (according to Morningstar).

I do not know Dodge and Cox very well but I believe their track record is outstanding (someone can correct me if that is wrong). Like all active managers do, they having a period where they are lagging their benchmark. This is not a big deal but Benz’ opinion that things will improve soon is nothing but a look back at what they have done before and simply believing they will go back to beating their benchmark.

There can be no analysis because no one can know what the managers will do six months from now–even the managers themselves cannot be certain what action they will take six months from now. This does not have to be a reason to avoid all actively managed products, I have a couple of actively managed products in my ownership universe (albeit narrower than DODBX). The managers of all of these funds are trying to be forward looking and sometimes they are right and sometimes they are wrong.

If you are inclined to buy actively managed products you just need to be aware that there is no real way you can do a forward looking analysis on the manager’s forward looking analysis. If the managers have a track record for being right more often then they are wrong that is great but in the future they will be wrong some portion of the time.

Last 5 posts by Roger Nusbaum

• The Big Picture for the Week of November 15, 2009 - November 14th, 2009
• Process Drilldown - October 23rd, 2009
• Sunday Morning Coffee 10-18-09 - October 18th, 2009
• A Little Followup From This Morning - October 8th, 2009
• Wednesday Roundup - October 7th, 2009