Down 57%, will the Scottish Mortgage share price recover in 2023?

As the Scottish Mortgage share price languishes, Andrew Mackie assesses whether now’s the time for him to invest ahead of a new bull market.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Tabletop model of a bear sat on desk in front of monitors showing stock charts

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Scottish Mortgage Investment Trust (LSE: SMT) has been one of the worst performing companies in the FTSE 100. Over the past 12 months, its share price has fallen 35%. As a result, it now trades at a sizeable discount to its net asset value. So should I buy?

Tech wreck

Between 2011 and 2021, the Scottish Mortgage share price rose over 900%. This made it by far the best performing global trust over that timeframe.

The trust developed a knack for investing in nascent companies, which subsequently went on to see extraordinary share price gains. Tesla being the most famous of them all.

An investment strategy built on investing in early-stage start-ups worked in an ultra-low interest rate environment. But as US rates went from zero to 4% in 2022, many of its investments nosedived.

Its fall from grace has called into question the competence of its managers, Tom Slater and Lawrence Burns. Only last week, its chairman resigned. This follows a dissenting director who resigned in protest over the direction of the trust’s investment strategy.

Green shoots?

Despite its recent woes, the trust continues to have its admirers, particularly among retail investors. Recently, its shares were the most bought on the Interactive Investor platform. Indeed, throughout 2022, it was never outside the top 10.

Many of the trust’s biggest holdings have seen a recovery recently. Tesla and Nvidia, for example, have almost doubled in price. However, such bounces are not unusual during bear markets.

During 2021, the market capitalisation of the top 10 stocks was over twice the GDP of the US economy.

Despite the falls seen in 2022, today, valuations in US equities remain above their long-term historical average. Indeed, they are still trading at the levels reached during the peak of the tech bubble.

Bear market rally

In January, the S&P 500 had its best start to the year in 22 years. It was like a feeling of déjà vu. All of a sudden, we saw a surge in interest in meme stocks and one-day expiration options. Cathie Wood’s ARKK Innovation ETF shot up.

When the tech bubble burst in 2000, there were eight separate instances where markets rallied by 15%, or more. In other words, there were eight bear market rallies. However, the S&P did not find a bottom until 2002.

Bear market rallies destroy wealth by sucking in money. Investors believe the worse is over, but then suddenly find the rug being pulled from under their feet. I believe we are in a similar environment today.

Valuations remain at extreme levels, particularly among the mega-caps. The likes of Apple, Microsoft, Nvidia and Amazon are likely to see earnings estimates continue to fall in the near future.

The problem I have with Scottish Mortgage is that it shows no signs of altering its investment strategy to this new reality. In a world of rising cost of capital, I find it hard to believe that unprofitable tech start-ups will thrive.

Whether the stock will fall further, I don’t know. But I am fairly confident that its days of heady growth are over for some time. I won’t be investing.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Andrew Mackie has no position in any of the shares mentioned. The Motley Fool UK has recommended Apple, Microsoft, and Nvidia. 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.

More on Investing Articles

Investing Articles

9.4%+ yields! 3 proven FTSE 100 dividend payers I’d buy for my Stocks and Shares ISA

Our writer highlights a trio of FTSE 100 shares with yields close to 10%. He'd happily pop them into his…

Read more »

Mixed-race female couple enjoying themselves on a walk
Investing Articles

Are Raspberry Pi shares a once-in-a-lifetime chance to get rich?

With Raspberry Pi shares surging after a successful IPO, could this UK tech startup offer a long-term wealth creation opportunity…

Read more »

Newspaper and direction sign with investment options
Investing Articles

Huge gains and 9% yields: why now’s an amazing time to be a stock market investor

The stock market’s generating fantastic returns in 2024. Whether you're looking for gains or income, it’s a great time to…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

This steady dividend payer looks like one of the best bargain stocks in the FTSE 100

A yield of 4.7% and a consistent dividend record make this FTSE 100 company look like good value in an…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

£9,000 in savings? That could become passive income of £19,175 a year

It's possible to invest affordable sums of money into building a big passive income stream. Here's how I'd go about…

Read more »

Black father and two young daughters dancing at home
Investing Articles

Legal & General shares: a once-in-a-decade passive income opportunity?

Is a dividend yield at its highest level in a decade, combined with a strong record of increasing payouts, a…

Read more »

Investing Articles

With a 7% yield and 4.1 P/E, is this the best passive income stock on the FTSE 350?

Millions of Britons invest for a passive income. While our writer isn't buying this stock yet, he believes it's worth…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

This amazing FTSE 250 has a 8.8% dividend yield and trades at just 4x forward earnings!

Our Foolish writer believes this FTSE 250 stock is worth keeping a very close eye on. However, he's not keen…

Read more »