Stay calm and ask yourself: Is it time to ax your manager?

If you manage a department or run a business, common sense tells you that the best way to escape from a problem is to solve it. And yet many managers avoid the issue of a worker who is not living up to expectations.

Likewise, you are the owner/manager of your personal investment business. And that being the case, your start to 2009 means reflecting on a lousy 2008, which should lead you to one simple question: Should I fire my fund managers?

Under most market conditions during our lifetime, a 40 percent annual decline would be horrible performance that is immediate cause for dismissal. In 2008, that kind of loss was average for equity funds. And while an equity manager who lost 30 percent or 35 percent clearly was "above average," it's hard to feel good about those results.

When investments go down 40 percent to 50 percent and the market delivers a reminder that diversification doesn't work well in cyclical bear markets, it's human nature to blame. That puts every manager who delivered poor results on the chopping block.

And yet the market is providing no havens, and past heroes and old standbys were taken for fools by this crisis. Top managers such as Dodge & Cox, the American funds and Fidelity Investments were every bit as horrible and miserable as the rest of the crowd.

There weren't new heroes, either. Investors harken back to 1987, when Elaine Garzerelli -- working for what was then Shearson Lehman -- called the valuation bubble that mushroomed into Black Monday. Even though she was never more than a mediocre fund manager when she tried her hand at it, she was a bright light in a dark time.

You'll have a hard time finding a Garzerelli-like figure today. Some perma-bears and newsletter editors helped a small-scale audience, but most Wall Street luminaries got 2008 wrong, which makes it hard to believe in them.

A good question to ask, according to investment adviser Michael Stolper, is: "If you were 100 percent in cash today and decided that it's time to put your money back to work in the market, would you give it back to this manager or look for someone new?"

You may not be completely in cash, but Stolper's point is that you want to own funds that are compelling buys now. If you make a change, Stolper noted, it should be because the new guy clearly had things right in '08 rather than that they did a few percentage points better mostly by dumb luck.

Your fund manager's statement in the annual report is the employee's chance to respond to the boss's critical evaluation. Managers who acknowledges their mess-ups may curry favor over those who lay all blame on conditions they could not control; read the letter to see if the narrative sways you.

Tax implications could be a reason to pull the trigger. It's too late to realize losses that ease your '08 tax burden, but recognizing a loss in taxable accounts and repositioning the money will help your future tax position.

The thing to remember is that any replacement must show the potential to be more impressive. Don't sack your manager out of anger; fire him or her only when you believe staying put will leave you even more upset with your future financial performance.

Charles A. Jaffe is senior columnist at MarketWatch. He can be reached at or at Box 70, Cohasset, MA 02025-0070.