Some investors have done very well by owning shares in tech companies when the sector is performing well. That may be through having invested directly in companies like Amazon. It can also be achieved by owning shares in a firm that invests in such business innovators, like the Scottish Mortgage Investment Trust (LSE: SMT).
In the past five years, Scottish Mortgage shares have increased by 79%, largely on the back of its investments in tech companies including Amazon and Tesla.
But recently, the picture has been less pretty. Many tech shares have tumbled in the past year – Amazon is down 44% and Tesla 46% over that period. Scottish Mortgage has seen its net asset value per share tumble on the back of this. Its shares are down 45% over a one-year timeframe.
Are these shares a bargain?
That means I can buy almost two Scottish Mortgage shares for the same money I would have paid for one 12 months ago.
Does that make them a bargain? Not necessarily. Just because a share falls in price does not necessarily make it good value. That depends on what it is worth.
We know what Scottish Mortgage shares are worth in terms of their underlying assets. The trust publishes a daily update of its net asset value, a snapshot of what its underlying assets are priced at.
However, I still do not think that really reflects the trust’s long-term value. After all, it is investing in growing companies trust managers think can grow sales strongly in future. If that happens, their share prices could rise. Just knowing the net asset value of each Scottish Mortgage share today does not help me understand what they are likely to be worth a decade from now.
Impressive tech portfolio
So how can I try to make a valuation of Scottish Mortgage shares? One way would be to consider its current portfolio.
The trust also regularly publishes an updated list of its portfolio. At the moment, it includes a wide range of tech companies, including stakes in listed companies like Amazon and its South American rival MercadoLibre alongside private ones including SpaceX and Northvolt.
Not only are some of those companies ones I expect to do well in future, I could not invest in all of them directly. But buying Scottish Mortgage shares could give me exposure to those businesses.
Boom or bust
Is now a good time for me to increase my exposure to the tech sector though? Prices have fallen sharply, but could still go further. That would likely drag down Scottish Mortgage shares.
Although that is a risk, as a long-term investor I am not focussed on what happens next in the stock market but in what might unfold over years to come. I think the business case for many tech firms is strong – and growing. At some point in future, I expect the sector to boom again.
Buying Scottish Mortgage shares now could help me ride such an upturn. If I had spare cash to invest, I would add them to my portfolio.
