Wednesday, March 12, 2008

Down $18 Million on a $20 Million Investment

This is a chart for Thornburg Mortgage Inc., a mortgage lender whose stock has...well, look at it. Taken a tumble doesn't quite name the beast. TMA closed yesterday at $1.50, down from $26.50 just this past July. Ouch.

If there's a bigger loser in TMA over the last nine months than TMA's namesake and founder, Garrett H. Thornburg, Jr., I'd like to meet him. Mr. T bought 224,000 shares of TMA on July 25 for $26.72 each, another 200,000 shares at $23.42 on August 6, and rounded up another $9.5 million in cash last October to buy 1,000,000 shares at $9.50 each.

He spent roughly $20 million to buy stock now worth $2 million.

The man believed in his company. The man knew that, despite the so-called "mortgage crisis," the loans TMA made were solid--every one of them triple-A credits. What Mr. T didn't know was that fear would get so bad, even good loans would lose value, thus giving his frightened moneybackers--the guys who package loans into securities--excuse to pass on losses back to Thornburg.

Let's call it a put option. Kinda of like the man on TV who offers you a lifetime, money-back guarantee. It never happens, right? 99% of the time, people either like the product or don't bother mailing it back for a refund.

Not so in this mortgage crisis. Everybody who can wants their money back.

Thornburg has a shot to survive--if they can raise more capital. But at $1.50 a share, you'd have to say the consensus looks bad. Then again, the day before, TMA stock was 87 cents. A company official--not Mr. T--says they are talking to lenders about raising enough money.

Good luck, TMA and Mr. T. Leave us a comment if you're in the mood. Love to hear how it feels being down $18 million.


TFA said...

Up yours, Carr. You just earned yourself a night in the trunk of my car. It's going down to 11 degrees tonight.

Austin Carr said...

Oops. Did we buy some on the way down, boss? Like Mr. T?