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Scottish Mortgage Investment Trust: should I buy after SMT’s recent 25% gain?

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Scottish Mortgage Investment Trust (LSE: SMT) is one of the UK’s most popular investment trusts. SMT has been a massive winner since the 2007-09 market crash. But today’s stars so often become tomorrow’s dogs, so would I buy SMT shares now?

Scottish Mortgage Investment Trust: a FTSE 100 winner

Congratulations to anyone who invested in Scottish Mortgage Investment Trust shares at almost any point since 2009. Since the market lows of March 2009, SMT stock has been a FTSE 100 superstar. Over three and five years, it’s ranked #3 in the Footsie. Over two years, it came in second and over the past year, it ranks at #9. Indeed, SMT shares have been a winner over eight timescales, ranging from one week to five years.

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1 week 2.0%
1 month 16.6%
3 months 1.4%
6 months 25.8%
1 year 91.3%
2 years 139.8%
3 years 169.1%
5 years 388.7%

SMT skyrockets since 2009

Looking at the chart of the Scottish Mortgage Investment Trust share price since 1991, a clear picture emerges. From 1991 until 2009, the performance of the share price was good, but unremarkable. It gained mostly in line with other actively managed global funds. After the Global Financial Crisis (GFC) of 2007-09, SMT showed no obvious signs of the massive growth to follow. But then SMT shares lifted off on a stratospheric trajectory.

In March 2009, as the world bounced back from the GFC, one Scottish Mortgage Investment Trust share cost under 60p. But under the stewardship of fund managers James Anderson (manager/joint manager since 2000) and Tom Slater (joint manager since 2015), the SMT share price exploded. In the first leg of this sustained surge, it skyrocketed.

On 19 February 2020, Scottish Mortgage Investment Trust stock closed at 659p. That’s 11 times the price of 11 years earlier, making SMT a proverbial ‘ten-bagger’ stock. Then along came the Covid-19 pandemic. As it spread globally, share prices plunged. One month on, the SMT share price had collapsed, hitting an intra-day low of 451.8p before closing at 477.6p on 19 March 2020. But after that, the share price has roared back to even greater heights.

On 15 February 2021, it hit a record closing high of 1,415p. The next day, it peaked at an all-time intra-day high of 1,418.57p. In just 11 months, the SMT share price had almost tripled. It gained 196.3% from its 2020 low to its 2021 closing high. That’s a comeback to rival Lazarus!

Would I buy SMT shares today?

With Scottish Mortgage Investment Trust shares so highly valued, the SMT share price has been volatile recently. As I write, the stock trades at 1,262.5p. That’s almost a quarter (24.5%) above its 2021 closing low of 1,017p, hit on 5 March. The reason for this renewed volatility is that SMT is heavily invested in US and Chinese tech stocks. These have been yo-yoing wildly this calendar year.

As a value investor for 35 years, I’ve learnt many painful lessons. One is that share prices can’t keep rising forever, just as trees don’t grow to the sky. Another is reversion to the mean (‘what goes up, must come down’). A third is to avoid highly priced stocks during euphoric bull markets. Having grown to a mighty £18bn market value, I can’t see the Scottish Mortgage Investment Trust’s remarkable winning streak continuing. Hence, I won’t buy this star share, for fear it could fall back to earth. Now watch Mr Market prove me wrong…

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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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