We are pleased with our portfolio's performance in our inaugural year, although we are sure most investors feel the same after the tremendous market appreciation since mid-March. We began in February with $100,000 of equity and ended the year at $132,329 (or an increase of 32.33%). This lagged the S&P 500 slightly (which returned 34.86% for the same period), but we achieved this substantial increase with far less risk to our portfolio than a fully-invested index during a period of great uncertainty. At most, we were 54% invested in the market, with the remainder in cash. We also invested (or sold cash-secured puts) in stable, positive cash flow companies with business models generally able to withstand the horrific economic environment. Note that our internal rate of return on our invested portfolio (our long investments, plus the entire amount of cash required upon exercise of any of our naked puts) for the year was 79.69%.

Holding a large cash balance won't necessarily be our investment model going forward - it was a result of our slow, diligent moves into the market as we found bargains. In hindsight, we should have gone "all in" when we started in February 2009, but we're confident our more cautious approach will serve us well going forward. In 2010 we will look to slowly build our portfolio of investments, until we are closer to 75-100% fully invested. Assuming the market continues to appreciate, we'll also look to build a portfolio of shorts of troubled businesses. Below is a brief summary of our current holdings, and the positions we exited in 2009.

Current Holdings:

• All eyes turn to Greece. Everyone's waiting to see if Europe will take action to rescue Greece. German officials admitted they were considering a "firewall" to prevent Greece's debt crisis from spiralling out of control. Some sources said European governments had agreed “in principle” to help Greece, probably on a bilateral basis through loan guarantees, while other government sources rejected those reports as "unfounded." However, there's little left other than bilateral action because the European Investment Bank has ruled out its involvement in a bailout, direct EU aid has been eliminated as a possibility and the European Commission vetoed suggestions of IMF involvement. If Greece is indeed bailed out, it will mark the first rescue of a eurozone member since the currency was launched 11 years ago.
• Goldman's role in the Greek debt crisis. As reported in Der Spiegel, Goldman Sachs (GS) played a key role in helping Greece hide its true debt levels. In 2002, a heavily indebted Greece reached a deal with Goldman for cross-currency swaps, in which government debt issued in foreign currencies was swapped for euro debt for a certain amount of time and then exchanged back to the original currencies. Greece and Goldman "devised a special kind of swap with fictional exchange rates," creating additional credit of up to $1B for Greece. Goldman Sachs declined to comment on the matter.
• Honda's recalls. Honda (HMC) announced a recall of 437,763 vehicles worldwide because of defective airbags that can rupture and send shards towards a driver in an accident. The move is in addition to a recall of 646,000 cars less than two weeks ago for a faulty window switch that caused one of its cars to become engulfed in flames, leading to a fatality.
• Air Products' buyout bid up in the air. Airgas (ARG) formally rejected a takeover proposal from Air Products and Chemicals (APD), saying the $5.1B offer significantly undervalues the company and isn't in the best interest of shareholders. Air Products responded that the rejection was "remarkable" considering Airgas missed earnings forecasts and warned about its profit outlook last month. This is the third time Airgas has rejected an advance by Air Products, which may prompt Air Products to head straight to Airgas shareholders with a tender offer.
• Citi tips its cap to energy credits. Citigroup (C) and Russian gas giant Gazprom reached a potentially pioneering deal to purchase energy credits from three heating utilities in Tianjin, China, that had outperformed efficiency targets. Though the deal is small, with the energy savings worth just $73,250, the arrangement is significant because it could mark the beginning of a fully implemented cap-and-trade market in China.
• Micron buys Numonyx in a flash. Micron (MU) said it will buy privately-held Numonyx Holdings in an all-stock deal worth around $1.3B. Numonyx, which is majority owned by Intel (INTC) and STMicroelectronics (STM), is the world's third-largest maker of flash-type memory chips. An existing relationship between Numonyx and Hynix Semiconductor, the world's No. 2 memory chipmaker, could help Micron catch up with larger rivals Samsung and Toshiba (TOSBF.PK).
• MetLife's Alico talks advance. MetLife (MET) is reportedly negotiating to pay AIG (AIG) roughly $15B in stock and cash for its Alico unit, and may receive a $5B bridge loan to cover some of the cash payment. Sources say a deal could be reached as soon as tomorrow. Premarket: AIG +0.6% (7:00 ET).
• Suncor makes progress with BC Foothills. Suncor Energy (SU) agreed to sell some of its British Columbia Foothills assets to Canada's Progress Energy Resources for C$390M ($366M). Progress CEO Michael Culbert said he viewed the assets "as high quality legacy properties with significant conventional and unconventional upside potential."
• S&P warns on BofA, Citi. S&P warned yesterday that it might downgrade Bank of America (BAC) and Citigroup (C) from their single-A credit ratings, revising its outlook (I, II) on the firms to negative from stable. The ratings firm is concerned that a proposed overhaul of U.S. financial rules would lessen the chances of future government bailouts should the firms one day need them.
• Paulson, Buffett praise intervention. Speaking together at a meeting of the Greater Omaha Chamber, Warren Buffett and former Treasury chief Henry Paulson praised government leaders for getting involved in the markets during the financial crisis. Paulson said U.S. employment could have reached 25% if not for government intervention in financial markets and the broader economy. Buffett credited Paulson, Bernanke and Geithner as being among those who helped save the financial system by acting decisively.
• 20% of mortgages are underwater. One in five U.S. mortgages were underwater in Q4, real estate website Zillow.com reported this morning. Home values continued to fall, marking the 12th consecutive quarter of year-over-year declines. "The prevalence of markets in or near a double-dip situation shows that we are not yet at the bottom, in terms of home values," said Stan Humphries, Zillow chief economist.
• Junk bond defaults dropping. The global default rate on junk bonds fell to 12.5% in January from 13% in December, and Moody's believes the default rate will fall to 3% within a year if the global economic recovery continues apace. If the recovery loses steam and credit spreads widen, default rates will be closer to 7.1% within a year.
• Chinese imports surge. China's imports jumped a record 85.5% in January from the year before, the third monthly increase in a row as domestic demand signals its strength. Exports rose 21% from the year before, which marked the second monthly advance after 13 months of declines and which may spur other countries to continue pushing for a stronger yuan. However, exports fell 16.3% from the month before, which could give ammunition to Beijing officials who want to keep the yuan steady.
• Google abuzz about new Gmail feature. Google (GOOG) launched a new service, called Google Buzz, which will allow users to follow online social updates by their friends directly through Gmail. The push towards social network development is meant to be a challenge to Facebook and other social media sites, but some feel the product will serve little use and question whether Gmail users will want updates on their contacts list rather than a network of friends. Meanwhile, Microsoft (MSFT) and Yahoo (YHOO) both touted their own existing social network components.
• Retail sales rise. Retail store sale rose 1.4% on a weekly basis and rose 1.8% from the year before, according to ICSC. Heavy weather tripped a stock-up effect for groceries, lifting the weekly numbers, while the yearly rate got a boost by a calendar shift for the Super Bowl. Redbook's chain store sales got a similar lift from the Super Bowl, and from sales of TVs, snacks and beverages. Sales were up 2% vs. the previous year, as compared to +0.8% last week.
• Inventories fall. Wholesale Inventories declined 0.8% in December, falling short of the +0.5% expected, and the +1.6% prior (revised). Wholesale sales were up 0.8% to $341.2B, vs. last month's +3.6% (revised).
• Consumer confidence edges up. ABC's Consumer Comfort Index registered -48, rising back up a point from last week. Positive ratings of the national economy slipped again, falling to 8%. However, the number rating personal finances positively rose to 47% from 45%, and 23% now say it's a good time to buy things, vs. 22% last week.

Earnings: Wednesday Before Open

• ArcelorMittal (MT): Q4 EPS of $0.68 beats by $0.41. Revenue of $18.6B (-15.6%) vs. $19B. Shares -5.6% premarket. (PR)
• Discovery Co (DISCA): Q4 EPS of $0.36 in-line. Revenue of $964M (+6.6%) vs. $943M. (PR)
• Elan (ELN): Q4 EPS of -$0.10 misses by $0.02. Revenue of $300M (+11.2%) vs. $296M. (PR)
• Jones Apparel Group (JNY): Q4 EPS of $0.11 in-line. Revenue of $777M (-8.3%) vs. $785M. (PR)
• Talisman Energy (TLM): Q4 EPS of $0.07 in-line. Revenue of $1.8B (+2.9%) vs. $1.78B. (PR)

Earnings: Tuesday After Close

• Baidu.com (BIDU): Q4 EPS of $1.80 beats by $0.12. Revenue of $185M (+40%) vs. $180M. Sees Q1 sales of $176M-181M vs. $170M. "With the transition to [new paid-search system] Phoenix Nest now behind us, we will focus on investing in both sales and marketing and R&D." Shares +8.9% AH. (PR, earnings call transcript)
• Disney (DIS): FQ1 EPS of $0.44 beats by $0.06. Earnings include impact of impairment charges and sales gain for a net -$0.03/share. Revenue of $9.74B (+1%) vs. $9.66B. Media Networks sales +7% to $4.175B. Parks and resorts sales flat; studio sales -1% to $1.935B. Ad rates at ABC TV are up 30% from last summer's upfronts. ESPN rates are up in the mid-single-digits. Studio operating income grew 30% on just 1% lower revenue. The company cut costs from a year ago. Shares +1.9% AH. (PR, earnings call transcript)
• EOG Resources (EOG): Q4 EPS of $0.92 misses by $0.06. Revenue of $1.8B (+8%) vs. $1.3B. Raises quarterly dividend 7%. (PR)
• UDR Inc. (UDR): Q4 FFO of $0.29 beats by $0.01. Sees fiscal 2010 FFO of $1.00-1.07 vs. $1.08. Revenue of $150M (flat) vs. $148.5M. Shares -3.9% AH. (PR)
• XL Capital (XL): FQ3 EPS of $0.69 misses by $0.01. Results exclude $254.8M of after-tax net realized losses; operating income was $235.8M. Revenue of $1.45B (+31%) vs. $1.16B. Shares -1.3% AH. (PR, earnings call transcript)

Today's Markets

• In Asia, Nikkei +0.3% to 9964. Hang Seng +0.7% to 19922. Shanghai +1.1% to 2983. BSE -0.8% to 15922.
• In Europe at midday, London +1.3% to 5176. Paris +1.4% to 3662. Frankfurt +1.4% to 5577.
• Futures: Dow +0.2% to 10024. S&P +0.21% to 1069. Nasdaq +0.24%. Crude flat at $80.17. Gold -0.3% to $1170.90.

Wednesday's Economic Calendar

• 7:00 MBA Mortgage Applications
  8:30 Trade Balance
  9:30 Tarullo: Systemic risk
  12:45 PM Plosser: Lessons of the Financial Crisis
  1:00 PM 10-Yr Note Auction
  1:20 PM Fisher: The Economic Landscape of 2010
• Notable earnings before Wednesday's open: CCE, DF, DISCA, ELN, ICE, JNY, LPX, LVLT, MMC, MT, NYT, OMC, S, TLM, WYN
• Notable earnings after Wednesday's close: ALL, AMKR, ARRS, ATVI, BMR, BSX, HIW, MAS, O, PRU, XRAY

Seeking Alpha editors Eli Hoffmann and Jason Aycock contributed to this post.