A Tip from the Best Financial Mind in America

Garrett Thornburg is a business visionary. He may have the best financial mind in America. Four weeks ago, Thornburg tipped me off to an easy stock market profit. You can buy it if you want, but first let me show you Thornburg’s credentials...

Thornburg first developed his taste for enterprise in the feedlots and cattle pastures of the Midwest, where he worked for his grandfather in a cattle brokerage business. A scholarship to military academy was his passage out of the fields and into formal education, which culminated in a degree from Harvard Business School.

But five years later, Thornburg hadn't gotten anywhere. He'd lost a job developing homes in the Caribbean and had failed at several other ventures. "I was probably the first Harvard MBA to be on unemployment," he says.

But like many successful entrepreneurs who struggle through long periods of failed ideas, Thornburg learned from his false starts. Eventually, with that accumulated wisdom, he struck it big...

Thornburg found his calling on Wall Street, devising new and creative ways to use bonds to finance real estate development. He connected with two powerful mentors, who taught him public financing. Soon, he was doing business with the biggest names in New York real estate, including Sam LeFrak, Harry Helmsley, and Steve Ross. Turning the Commodore Hotel into the Grand Hyatt was one of Thornburg's big deals. Using public bonds to finance the projects, he sold these deals to developers as tax shelters. Thornburg also put together the structured finance to build the New York Convention Center.

Soon, Bear Stearns hired him to set up a public finance department. At Bear Stearns, he continued using bonds to finance development projects... including the construction of ski lifts in Vail.

Here's the thing I love about Thornburg: He's a nonconformist. While all his Wall Street colleagues took vacations in the Hamptons, Thornburg preferred to hang around with bohemians and hippies near an art colony on Garcia Street in Santa Fe, New Mexico. When Bear Stearns rejected one of Thornburg's more imaginative ideas, he quit his job and moved to Santa Fe. With just $45,000 in cash, he started up his own bond-financing business in 1993.

In my DailyWealth column from March 28, we saw how Andy Beal made a fortune buying up distressed debt from crippled savings and loans in the late 1980s. Thornburg built his fortune doing the exact same thing.

In the early 1990s, the thrifts needed to sell their adjustable rate mortgages. "The savings and loans couldn't afford to hold ARMs in portfolios because the overhead was too high," Garrett Thornburg explains. "They all needed to sell, and there was not a great bid in the marketplace; nobody outside the thrifts had a whole lot of interest in those sorts of mortgage products."

So Thornburg picked up the phone and started cold-calling the largest banks in America. Within five months, he had bought $500 million worth of these unpopular mortgage bonds.

His second strategy took advantage of bankrupt state governments. According to Crosswinds, a small newspaper from Thornburg's hometown in New Mexico, he purchased depressed municipal bonds from "post-oil-bust Texas, overtaxed Massachusetts, and collapsing California."

"We just love panics," Thornburg says.

Fifteen years later, Garrett Thornburg has more than $100 billion in assets under management, and he's one of the richest men in New Mexico.

Here's the scoop: While researching Garrett Thornburg the other day, I noticed he'd recently bought stock in a company that originates mortgages. At $5 million, it was the single-largest purchase of stock he's ever made.

Thornburg loves investing in crises and he has already made one fortune by vulture investing. Since December, 62 mortgage lending companies have hit the wall. The surviving companies are all still in the dumps. Could this be the start of his next fortune, I wondered?

So I checked the insider activity in the general mortgage-lending sector. Sure enough, Thornburg is not the only experienced lender piling into mortgage stocks right now. I found large insider buying at Saul Centers (BFS), JER Investors Trust (JRT), American Home Mortgage Investment Corp. (AHM), and Luminent Mortgage Capital (LUM).

These mortgage stocks are cheap, and they're the safest stocks in the sector (they didn't go broke). Now, they have much less competition, too. The experts are piling in, isn't it time you do too?

Good investing,

Tom

P.S. I now have three mortgage plays in my newsletter's portfolio. They all pay huge dividends, are all extremely safe businesses, and have minimal exposure to subprime. And, thanks to panicking subprime investors, they all sell at a big discounts, right now.