How to Evaluate Your Portfolio This Year

None of this is to say that you should not be flexible in your investment and risk management. But consistently evaluating how your investments stack up against your specific benchmark will require not falling prey to style drift. Bottom line: When the market goes wild, be careful how you play it because style drift may impair your judgment in the future, when a return to your core investment style would be optimal.

2. Missing Twists and Turns

2008 had more twists and turns than the Le Mans race course. Oil and commodity prices reached record highs only to fall dramatically to multi-year lows. Financial companies already hurting from the subprime credit crisis had to turn to the government for "TARP" and other government-led bailout programs. A deepening recession hit consumers' demand for goods and services. Unemployment soared and GDP growth sank. A symptom of all of these market conditions led to one of the most volatile markets ever.

This was not an easy year to navigate. Personally, while I trimmed many of my oil and commodity holdings in May, I held onto positions which were roughly in line with the market weighting.

Financials were best left to avoid for most of the year. However, as measured by the Financial Select Sector SPDR (XLF Quote), this group of stocks recentlly rebounded by 36% off of its lows (as of the end of business on Monday). Few investors were able to take advantage of this bounce as they remained out of the sector for fear of even more bankruptcies or near bankruptcies, such as Lehman Brothers, Bear Stearns and American International Group (AIG Quote).

During all of this economic mayhem, volatility as defined by the CBOE Volatility Index (VIX rose to multi-decade highs.

If your style is not to trade volatility or price ranges, then it is likely that your performance suffered this year. As I mentioned before, if you did not catch the twists and turns and volatility of 2008, don't worry. You were not alone.