It has been nearly a year (December 11th, 2008 to be precise) since Bernie Madoff was arrested for “orchestrating a Ponzi scheme.”  At the time it was another piece of horrible news that gave investors cause to believe the markets were rigged against them.  Admittedly that was not altogether incorrect.  As the new year rolled around the equity markets, and all other risk assets, continued to proceed downwards ultimately making a low in March.

What has happened in the meantime?  The stock market has rallied. The spreads on non-Treasury bonds have shrunk dramatically.  Anything with emerging markets in the name has really rallied.  Indeed some market observers, like Jeff Miller, are seeing a return of “dubious investment propositions” seen only in rip-roaring bull markets.

This begs the question:  Have you sold anything yet?

Guy Lerner at The Technical Take asked this question a week ago in light of some technical divergences he saw that have historically led to a market correction.  We really don’t have any inkling whether this take on the market’s direction is correct, but the question is an interesting one.

The market is back to levels seen in early October 2008 prior to the bulk of the plunge.  Therefore those who were ill-positioned going into the end of 2008 are being given an opportunity.  For some it might very well mean selling something.  For others it might mean the opportunity to re-balance their portfolio.  For another group of investors it might mean the chance to totally re-design their asset allocation approach.  Any (or all) of these moves are now much easier in light of market developments.

As bad as 2008 was it is symptomatic of a more pervasive issue.  The past decade has not been kind to buy-and-hold investors.  As the decade comes to a close it will finish with the worst total return since the 1930s.  If nothing else it has taught us that stocks are not a sure bet.  Therefore making it imperative for investors to have a strategy that can adapt to a poor market environment if that is what the next decade presents.

As kids when we made a mistake we were often granted a “do-over.”  In short, a chance to right a wrong or fix a mistake.  Nearly every investor in 2008-2009, no matter how you were positioned, made some mistakes.  As Carl Richards at behavior gap writes:

For the most part [fraud being a notable exception], investments don’t make mistakes, investors do.

So as 2009 rapidly comes to a close we are being given a rare opportunity as adults at a do-over.  The rebound in the markets this year many investors are a chance to erase some dubious decisions.  The question is:  what are you going to do with your do-over?