You've replaced last year's Sniglet-A-Day calendar with a 2005 model. Maybe something a little racier this year -- does an Extreme Ironing calendar send the wrong message in an office environment?

You may have gone out for a run this morning, pledged to get up a little bit earlier, maybe even cut out fatty foods. We'll see how it goes. Last year Krispy Kreme (NYSE:KKD) led a host of companies that blamed the popularity of the Atkins and other low-carb diets on their poor performances, so at least some people out there were able to keep to their pledges to lower their, ahem, portfolio weightings.

Of course, it must be said, as for Krispy Kreme blaming the late Dr. Atkins for their woe, I thought at the time that this was a convenient excuse by management to deflect the blame for their company's pathetic showing from where it belonged -- their own incompetence. Maybe the New Year's resolution for Krispy Kreme shareholders could be to get rid of the executive's (NASDAQ:MKTW) Herb Greenberg nominated as the "Worst CEO in America."

But there's one last thing that you should do before you close the book on 2004. Already we're getting the scorecard on such luminaries as Legg Mason Value Trust's (FUND:LVMTX) Bill Miller (beat the S&P 500), Berkshire Hathaway's (NYSE:BRKa) Warren Buffett (increased book value of the firm), and Rusty the Cow (beat the index, lost to the experts). You may not be a luminary, but you, too, should calculate your investing returns for the year, to see how your decisions fared. The calculation is really very simple -- it's called a holding period return.

HPR is easily defined, and is useful in a great deal of different forms. Its basic form is this:

(End Price + Dividends) - Beginning Price
HPR = ----------------------------------------------------------
Beginning Price

Let's take Motley Fool Income Investor selection at (not) random, Annaly Mortgage (NYSE:NLY). At the beginning of the year, its share price was $18.55 per stub, while it closed last Friday at $19.62. During the year, Annaly shareholders received dividends of $0.50, $0.50, $0.48, and $0.50 for a total of $1.98. So in the case of Annaly, the one-year return to shareholders is:

(19.62 + 1.98) - 18.55
--------------------------- = 16.44%

Ah, but we're talking about determining the performance of our entire portfolios, so we need to change the inputs just a bit. First step, go break out all of your portfolio statements for the year. Don't worry, we're not breaking out every single position -- we just need a few numbers. Particularly if you trade a bunch, it would be a nightmare to track each holding on a time-weighted basis, so we can go with a rough-cut formula for HPR for a portfolio:

End portfolio value - (Beginning Portfolio value + Cash added during year)
HPR = -------------------------------------------------------------------------------------------------- Beginning portfolio value

Look at your January statement for the value of your portfolio at the beginning of the period. Let's just say that this number is $53,974 (and some pennies, which we're going to ignore.) Now, take the end of the year number, which, on the strength of your (NASDAQ:OSTK) position, now sits at $81,224. So you can just subtract and divide, right?

Not so fast. You need to take one other thing into account. No, not dividends -- they're built into the portfolio's end value. You need to add any cash you added to the portfolio and subtract any cash you withdrew from it. Ah, look, there in April. You deposited your tax refund of $6,500 into your brokerage account. Now you have the tools to figure out your annual return:

81,224 - (53,974 + 6500) 20,750
HPR = --------------------------- = ----------- = 38.44%
53,974 53,974

38%!! Not a half-bad return for numbers that I just made up, eh?

I want to make the same observation about this that I did in our annual stockpicking product, Stocks 2005, which I edit. In business, there really is nothing particularly noteworthy about a 365-day cycle, especially one that specifically runs from Jan. 1 to Dec. 31. This is a calendar year return, and while returns are important, they must be put in context, because as a single point in time, Jan. 3, 2005 is actually fairly meaningless and may not be representative of the year. Further, as people who have bought into companies such as Kodak (NYSE:EK) and Valero (NYSE:VLO), or people who held shares of companies such as CMGI (NASDAQ:CMGI) short during the bubble, can attest, company condition and the performance of their shares can diverge for extended periods of time -- certainly well more than a year.

So while the year is an instructive length of time for measuring returns, just keep it in context. A stock selection is not necessarily good or bad because of its returns over a one-year period, and neither, really, is the performance of an entire portfolio, unless that return happens to be, say, up 100,000% or down 100% -- gains or losses large enough to be permanently altering of your financial position. Be that as it may, you don't want to be libertine about measuring financial performance. After all: It does a person no good at all to be able to explain away year upon year upon year of poor performance because she is only "interested in the long term."

Keeping track of how well you do is important. If you trailed the index returns this year (the S&P's total gain was 10.9% in 2004), it's probably not that big of a deal. If your returns from 1998 through today are still below that of the unmanaged index, it may be time to go join the ranks of the Vanguard 500 Index Fund (FUND:VFINX) crowd.

See also: "Stocks 2004: 11 Picks, 11 Winners"

Bill Mann holds shares in Annaly Mortgage and Berkshire Hathaway. He is the editor of Stocks 2005, the Motley Fool's annual stock picking guide. Last year's version's holding period return, Jan. 1 to Dec. 31, was 47.3%.