Over the past year, Scottish Mortgage Investment Trust (LSE: SMT) has seen its shares fall 42%. At the moment, the share price is less than half of what it was in early November. But this investment trust is well-known for its long-term performance. So, if I bought shares today, is there a chance the price could end up going back to where it stood in November — and double my money?
Share prices and the wider market
Just because a share has fallen a certain amount does not mean that it will gain it back it in future. Many shares fall in price and never reach their old levels again.
So, while Scottish Mortgage shares are down, there is no guarantee that they will ever recover.
Their future performance likely depends on the business results of the companies in which the trust invests. Its business model consists of buying shares in dozens of growth companies like Tesla and NVIDIA. The recent fall in the Scottish Mortgage share price has partly been driven by the price of many tech shares heading lower. But if the sorts of growth stories in which it invests attract more positive investor sentiment again, that could be good news for Scottish Mortgage.
Possible growth drivers for the Scottish Mortgage share price
I think there are some strong growth stories in the trust’s investment portfolio that currently look quite attractively valued, from Netflix to Tencent. If there is a broad turnaround in tech stock valuations, it could definitely help lift the value of the Scottish Mortgage portfolio. Its share price ought to follow in that case.
But I do not see any particular driver for a growth in tech valuations at the moment. They fell back partly because investors were concerned that valuations were unreasonable. A slowing economy and rising interest rates could lead to further market volatility. On top of that, while I see value in some of the shares held by Scottish Mortgage, I do not think that is true of its whole portfolio. For example, I continue to feel Ocado shares are expensive for a loss-making and capital-intensive business, but the trust owns some.
I like the long-term growth drivers of much of the portfolio. The benefit of owning shares in dozens of different firms is that Scottish Mortgage does not need them all to succeed. Indeed, even if just a handful perform very well indeed, it could be good news for the share price. But while I think buying the shares today could offer me long-term returns, I would not expect to double my money in the coming years.
My next move
Even if I do not double my money, I still see possible value in owning Scottish Mortgage shares. The company has an excellent track record of picking promising growth stories at an early stage.
Its existing portfolio has lost value, but offers exposure to a diversified range of growth opportunities across the globe. While tech shares may continue to suffer in the short term, in the years to come I expect some of those shares to do well. That could push up the Scottish Mortgage share price even if it does not double. I would consider buying the shares now for my portfolio and holding them for the long term.
