Scottish Mortgage (LSE: SMT) shares have fallen 40% so far in 2022, after climbing in 2021. In fact, the shares are down 50% since their 52-week high in November.
This is Baillie Gifford’s flagship investment trust we’re taking about here. It invests in a diversified portfolio of US growth stocks that I see as riskier individually. So what’s the reason for the slide, and should I buy now?
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The Scottish Mortgage share price chart for the past 12 months is not pretty:
It looks like it’s all down to a falling out with technology, including biotech. A whole raft of companies in those areas have faced a big sell-off this year as economic woes have escalated.
Scottish Mortgage holdings
Companies like Tesla, Moderna, Illumina, ASML… they’ve all been falling. And those four are among SMT’s top 10 holdings, as of 31 March.
Growth stocks like these are often valued on high price-to-earnings (P/E) multiples. Even now, for example, Tesla is still on a trailing P/E of over 100. That means it would take 100 years of last year’s earnings to cover the value of the shares.
To put that into some kind of perspective, the average P/E of the Nasdaq, America’s tech stock index, is only around 21. Apple‘s is 24.
Looking at other stocks in SMT’s top 10, Nvidia is down 40% since the start of the year, Alibaba has dropped 26%. Even mature online retailer Amazon has lost 32%. The remaining three are Tencent, Kering, and Meituan.
Those 10 stocks made up 44% of SMT’s total holdings, so it’s no wonder Scottish Mortgage shares have fallen in 2022 too. But what can we learn from it? I’m also wondering whether it’s a good time to buy now. I think it just might be.
The first lesson for me is that I would only invest in high-value tech stocks if I was prepared to take this kind of hit from time to time. My approach to overcoming such hurdles in my investing is to stick with it for the long term.
Long-term SMT performance
Even after the big 2022 tech stock sell-off, the Scottish Mortgage Trust share price has still just about doubled over the past five years. The FTSE 100, by comparison, has gained only 0.5%.
And over 10 years, we’re looking at a gain of 445% for SMT, with the index managing just 40%.
Growth stocks do tend to go through cycles. They often go through ups and downs, and the downs can be great times to buy.
Right now, I’m seriously thinking of buying SMT shares. They’re on a discount to NAV of 8.4%. That just means the shares are priced at 8.4% less than the value of the assets they represent. I’m also drawn to the current Nasdaq valuation, which does not look high right now.
Against that, the outlook for tech shares could be weak for a few years now. I need to do more research before I decide.