It’s July 23, 2000. The Bubble has burst, though bottoms haven’t been reached. The World Trade Center still stands tall. Enron is one of the world’s most respected companies. The New York Times declares Hank Greenberg a better investor than Warren Buffett.

As the article points out, over the previous 5 and 10 year periods, AIG had substantially outperformed Berkshire. The article goes on at great length to paint Greenberg and Buffett as “Polar Opposites”, Buffett, “invests like a riverboat gambler,” while Greenberg “may act like the tough guy, but when it comes to investing A.I.G.’s capital, he turns cautious.”

ONE plays the part of the hayseed, the other the quintessential New York tough guy, complete with flinty stare and a vocabulary that might stun the crowd at a hip-hop concert. One loves bridge and jokes that he reluctantly drags himself around a golf course; the other is a bundle of energy whose idea of relaxation is rocketing down a frozen ski trail.

The events of the subsequent decade make the article seem laughable. Greenberg was forced out of AIG by NY Attorney General Spitzer, and AIG required nearly $200 Billion in government capital to avert the most spectacular corporate collapse in American history. Were AIG’s flaws already present? Could a careful investor have detected red flags back then?

One more hypothetical nags at us: what would the world look like today had Greenberg managed to hold onto his job as AIG CEO and if Buffett had lost his in the midst of a 1970s SEC investigation. It would be a different world indeed.

We are pleased to welcome you to the 175th Edition of the Festival Of Stocks. The Festival Of Stocks is a blog carnival dedicated to featuring posts on a variety of stock market topics.

Though the Inelegant Investor has published only sporadically of late, we were a frequent participant in early Festivals Of Stocks, including the first edition. We hope that hosting this will mark the beginning of our return from a long hiatus.

This week’s posts offer a wide variety of different perspectives and approaches.

Dividends Value provides a nice analysis of an interesting P&C insurer in Harleysville Group Inc. (HGIC) Dividend Stock Analysis

Dividend Growth Investor offers Five Consumer Stocks For 2010

ZachStocks examines the Healthcare bill and how investors might profit in Weakened Healthcare Bill Exposes Stock Risk
Fat Pitch Financials is the driving force behind the Festival Of Stocks, and this week, updates us on the (out)performance of the Fat Pitch Financials Portfolio in Fat Pitch Financials Portfolio 2009

I’ve always liked Stillwater Mining(SWC) as a play on Platinum and Palladium, but ETFdb explains what the state of Palladium ETFs is today in Definitive Guide To Palladium ETF Investing: Palladium ETFs 101

Bargaineering explains to us some of the mechanics of dividend investing.

The Sun’s Financial Diary wonders: Is The January Effect Real?

Wisebread has a 4 step program for those who would like to learn to invest in Learn to Invest in 2010: 4 Steps to Educating Yourself

The Digerati Life has advice on investing specifically for those who may be getting a late start on planning for retirement in Retirement Investing Advice For Late Start Investors

We know nothing of the Australian stock market, but the Australian Stock Market Investing Blog has much to say about 2010 Share Market Floats- What Can Investors Look Forward To?

Dough Roller provides a comparison of discount online brokerages.

Foreigner’s Finances weighs in with a review of Zecco.

Good Financial Cents writes about the yield curve and what it means for economic growth in The Yield Curve Flashes Green

Learning Stocks explains the basics of How To Read Stock Charts

We don’t follow forex, and have little interest in technical analysis, but for those who do, Forexoma explains How Forex Market Reacts to Bollinger Middle Band

Saving To Invest reviews 2009 and looks ahead to 2010

We’ve enjoyed hosting the Festival Of Stocks and look forward to reading and participating in future editions.

As always, the schedule of past and future Festivals can be found here. Next week’s Festival will be hosted by The Kirk Report.

Steak N Shake(SNS) has posted the annual letter from Chairman Sardar Biglari. Biglari has made great progress with the company since taking over, swinging from a loss of $23 million in 2008 to a profit of $6 million in 2009. The capital structure has been greatly strengthened. After beginning the year with just $6.9 million in cash and $30.7 million in debt, the year ended with $54.4 million in cash and investments, and just $18.6 million in debt. The swing in cash was largely driven by a decrease in capital expenditure to $5.7 million, down from $31.4 million 2008 and $68.6 million in 2007.

The fear when slashing capital expenditure is a decrease in sales, but Q4 featured a 20% increase in customer traffic and a 10.1% increase in same store sales, the best quarter yet in the recent reversal of a multi-year tend of declining sales.

Biglari also announced a 1 for 20 reverse split, effective December 18, in order to discourage speculation in the stock, marking an interesting counter to Buffett’s recent decision to split Berkshire Hathaway B shares as part of the Burlington Northern acquisition.

Biglari reitierated that increasing intrinsic value is his only goal, and promised that “Rest assured, we
will fire ourselves if we fail to create value over time.” Towards this end, we are told again of the holding company structure and Biglari as the sole authority on allocating capital.

Biglari provides a brief history of his involvement with Western Sizzlin(WEST) and the upcoming merger, but does not mention his most recent move, the acquisition of a 9.9% stake in Fremont Michigan Insurance Corp(FMMH)

Biglari has produced impressive results in his short career, and it would appear that he is poised to build on his success and continue to deliver superior returns on capital.

Disclosure: I own shares in WEST,SNS, BRKB,and FMMH

For years, Warren Buffett has spoken of searching for an elephant of a transaction. Berkshire Hathaway’s(BRKA,BRKB) announcement today that it will be acquiring Burlington Northern Santa Fe(BNI) in a $44 Billion deal represents the final capture of an elephant that has been in Buffet’s sights for several years as Berkshire has consistently bought to acquire almost 22.6% of the company prior to today.

The deal will consist of 40% stock and 60% cash. That Buffett is paying with Berkshire stock says something interesting about his appraisial of Berkshire’s future prospects. Buffett has in the past lamented stock deals he’s done(in particular the General Re deal). Buffett stated that stock is included in this deal in order to provide tax free treatment for BNI shareholders. Using stock implies that Buffett believes that BNI will grow intrinsic value at a faster rate then the rest of Berkshire.

Also of note is that Berkshire will be splitting Class B shares 50-1 in order to be able to compensate even the smallest BNI shareholder in stock. Buffett has been notoriously resistant to splitting his stock. It will be interesting to see what impact this has on Berkshire. We believe it represents a significant step in Berkshire’s transition from an investment partnership run by Buffett to a global corporation that will thrive in a post-Buffett era. It is also likely that the split will pave the way for Berkshire’s addition to the S&P 500.

Disclosure: We own shares of Berkshire Hathaway

The Steak N Shake Company(SNS) filed an 8-k this afternoon disclosing that it has amended its credit agreement to “permit the Company to use up to $10.0 million of surplus cash to make investments of any lawful nature, so long as no event of default exists.”

In addition, the Company has granted “Chief Executive Officer, Sardar Biglari, full power and authority to make all investment and capital allocation decisions on behalf of the Company”

Biglari, through the Lion Fund, Western Sizzlin(WEST) and other affiliated parties controls 10.1% of Steak N Shake’s outstanding stock. After taking control of WEST, Mr. Biglari gained approval to invest cash and has made various investments including SNS.  His operating strategy of halting new company-owned stores, refranchising others and focusing on increasing sales and profitability of existing stores seems to be paying off as SNS earlier this week reported impressive same-store sales gains in a very difficult environment for casual dining. SNS is now doing sufficiently well, that Mr. Biglari and the board believe that cash might be deployed for a better return outside of its core business.

Though Mr. Biglari has shown a soft spot for casual dining stocks(he held a significant stake in Friendly’s prior to WEST and SNS, and at one time attempted a tender for part of JBX), he has also purchased a financial adviser, tendered for ITEX, a bartering company, and purchased real estate for development.  It will be interesting to see where and when Mr. Biglari decides to invest this excess cash.

Disclosure: I have a position in SNS and WEST

In February 2007(sadly one of our more recent posts), we wrote about Matrixx(MTXX) Initiatives.  At the time, Jove Partners had filed a 13D urging a sale of the company.  Jove noted at the time that the company’s single brand would benefit from the scale of being part of a larger company.

At the time, we noted:

One potential concern are claims that Zicam has caused users to lose their sense of smell. The company has already settled several lawsuits, but it is unclear what potential future exposure might be. This would clearly be a concern of a potential buyer.

What we didn’t discuss was how this particular risk, combined with Zicam being the company’s only product placed the company in a precarious situation.

Today, the FDA warned the public against using several Zicam products and declared that their sale should be subject to FDA approval as a drug.  The FDA’s entire letter can be found here.  As a result, MTXX plummeted nearly 70% today.   The company had been trading close to its 52 week high, was profitable and well-capitalized.  This will likely be a fatal blow to the company.  The future holds anemic sales and a slew of new lawsuits. MTXX holders might want to consider taking some Zicam; perhaps it will allow them to live with the stench of this stock.

Disclosure: No position in MTXX

What an inopportune time to be away!  What more inelegant time has there been for investors than the last 16 months? In our absence, many icons of the American economy have been transformed from gleaming towers of prosperity to piles of twisted, rusting rubble. Yet amongst the ashes, there are diamonds aplenty. Now is the time to rescue babies from the discarded bathwater.

Perhaps we’ll even find the time to write about some of the babies we find- or the salacious details of the bathwater.

I always imagined that I’d be a subscriber to a print edition of my daily newspaper long after it passed from normal to weird to quaint. I don’t have milk or ice delivered, nor did I use cloth diapers, but the experience of retrieving the morning paper from my front steps and the feel of the paper in my hands as I read it always seemed far superior to the pale glow of my computer screen. I thought our love would last forever; I certainly didn’t stray.

My local paper, desperate to increase revenue, began to charge a premium for home delivery rather than, as had long been industry practice, offer a discount. I decided I could just as easily pick up the paper myself, but only on days I had time to read it, so I canceled. Periodically, I’d resubscribe when I received offers of 75% off cover price for 13 or 26 weeks, being careful to cancel when the special rate expired. Eventually, I found I was buying the paper less and less often and then, not at all.

Even after this, I continued to subscribe to Barron’s, excitedly bringing it in and reading it each weekend. I always turned first to Alan Abelson’s weekly column, and was never disappointed by his wit and insight. This love too began to fade. It began when I began to receive renewal notices offering me a “special” rate. Special apparently meant “twice as much as it would cost on our website and without online access.”

Last week, the Bancroft family made much noise opposing News Corp.’s(NWS) bid for Dow Jones(DJ), publisher of Barron’s and the Wall Street Journal. Despite the fact that the bid was 60% above the previous close,the deal appears dead on concerns that new ownership would threaten the paper’s integrity, independence and quality. Judging by an article appearing in this weekend’s Barron’s, a downward slide in quality has already begun.

I was quite dismayed when I began reading the article in this week’s Barron’s on Delta Airlines(DAL)’s prospects as it emerges from bankruptcy. I immediately noticed something amiss. Every ticker symbol in the article was wrong. As were multiple names. As were multiple words. PlaneBuzz has a copy of the article and a list of mistakes here. PlaneBuzz further reported Barron’s response to complaints:

“The use of an automated spellchecker resulted in a number of errors in last week’s feature story about Delta Airlines. The company’s chief executive is Gerald Grinstein, and an analyst cited was Ray Neidl of Calyon Securities. Delta’s ticker symbol is DAL, US Airways’ is LCC. American Airlines’ parent is AMR, with the ticker AMR. A variety of other words also were garbled. A fully corrected version of the story is available for free on Barron’s Online, at www.barrons.com .”

Old media claims an advantage over blogs in terms of quality, but apparently, no human looks at the final version of articles appearing in this paper. I’ll probably continue to read Barron’s for now, and may even subscribe to a daily newspaper again. But I now see a day in the future when I won’t. And if the newspaper has lost even me, its irrelevancy is not far off. Maybe they can cut a deal with the milkman.

In Warren Buffett’s 2006 annual letter to Berkshire Hathaway shareholders, released today, he comments on two different struggling industries. One, he believes, will once again see great days. The other, is doomed to growing irrelevance and shrinking profitability.

Though Buffett was rumored to be a buyer of newspapers, perhaps by desperate sellers who hoped he might be, he makes clear that he sees a grim future for the industry. Buffett writes:

Not all of our businesses are destined to increase profits. When an industry’s underlying
economics are crumbling, talented management may slow the rate of decline. Eventually, though,
eroding fundamentals will overwhelm managerial brilliance. (As a wise friend told me long ago,
“If you want to get a reputation as a good businessman, be sure to get into a good business.”) And
fundamentals are definitely eroding in the newspaper industry, a trend that has caused the profits
of our Buffalo News to decline. The skid will almost certainly continue.

Buffett describes the factors that served to make newspapers huge cash cows for many years and describes the irreversible changes that are rocking the industry:

Now, however, almost all newspaper owners realize that they are constantly losing ground in the
battle for eyeballs. Simply put, if cable and satellite broadcasting, as well as the internet, had
come along first, newspapers as we know them probably would never have existed.

Finally, he suggests who the likely buyers for newspapers are:

For a local resident, ownership of a city’s paper, like ownership of a sports team, still produces
instant prominence. With it typically comes power and influence. These are ruboffs that appeal to
many people with money. Beyond that, civic-minded, wealthy individuals may feel that local
ownership will serve their community well. That’s why Peter Kiewit bought the Omaha paper
more than 40 years ago.
We are likely therefore to see non-economic individual buyers of newspapers emerge, just as we
have seen such buyers acquire major sports franchises. Aspiring press lords should be careful,
however: There’s no rule that says a newspaper’s revenues can’t fall below its expenses and that
losses can’t mushroom. Fixed costs are high in the newspaper business, and that’s bad news when
unit volume heads south. As the importance of newspapers diminishes, moreover, the “psychic”
value of possessing one will wane, whereas owning a sports franchise will likely retain its cachet.

Newspapers, Buffett believes, are to be reduced to mere trophies, symbols of the great wealth of their owners. But like the great works of Ozymandias, in time, nothing will be left but remnants of shattered printing presses.

Later in the letter, Buffett speaks about HomeServices of America, the second largest real estate broker in the U.S. With the weakening of the U.S. real estate market, HomeServices’ revenue and earnings dropped 9% and 50%, respectively, despite having made several acquisitions. Despite these negative trends, he remains optimistic:

Nevertheless, we will be seeking to purchase additional brokerage operations. A decade from now, HomeServices will almost certainly be much larger.

The difference between the newspaper industry and the real estate brokerage industry is a lesson at the core of value investing. Newspapers represent a dreaded value trap- cheap this year, cheaper next year, and still cheaper the year after. Buffett experienced value traps firsthand with Berkshire’s textile business. On the other hand, real estate brokers are cheap based on short term expectations, but will, he believes, recover and grow once again. It is often unclear which group cheap stocks fall into. The ability to properly discern is indeed the hallmark of successful investors.

Matrixx Initiatives(MTXX) believes that its Zicam line of homeopathic cold remedies will relieve your cold symptoms. Jove Partners believes that it knows how to solve Matrixx’s own ailments: a sale of the company to a strategic investor.

Jove filed a 13D today, disclosing a 5.1% ownership stake and declaring that

The Reporting Persons appreciate the job that management has done and is
doing to build the Zicam brand. However, they believe that the value created to
date has not been appropriately recognized by the market and will not be fully
realizable as long as Zicam remains a stand-alone brand. In particular, the
Reporting Persons believe that the Issuer’s profit margins have been depressed
and should normalize over the next several years. The Reporting Persons believe
that this normalization could be meaningfully enhanced if the Issuer were
acquired by a strategic investor.

Matrixx fell far short of estimates for 2006, blaming a late cold season. Jove’s thesis, that Zicam would be a more profitable product as part of a larger company rings true. The difficulty of competing for pharmacy shelf space with behemoths like Johnson & Johnson(JNJ), which recently expanded its girth with its purchase of Pfizer’s(PFE) consumer products division, is great. Improvements in distribution and manufacturing from being part of a larger company could be substantial as well.

One potential concern are claims that Zicam has caused users to lose their sense of smell. The company has already settled several lawsuits, but it is unclear what potential future exposure might be. This would clearly be a concern of a potential buyer.

I previously noted Jove when they filed a 13D on Lifetime Brands(LCUT) and some background information on them can be found in that post.

Jove’s filing led to a 12% jump in Matrixx’s shares today(2/22) as investors seem to believe that the company is now likely to be acquired above the current price. With no debt, and a market cap minus cash of less than two times sales, Matrixx may indeed be a good fit for buyer who can grow sales and margins.

Disclosure: I hold no postion in MTXX