I’ve been toying with the idea of buying Scottish Mortgage (LSE: SMT) shares for so long that I never thought I’d actually go ahead and do it. So I was shocked to be clicking the ‘buy’ button last week.
The Scottish Mortgage Investment Trust has fascinated me for years. I was a big fan when it first rocketed to everyone’s attention with its stellar performance. Then I began to worry as I looked below the bonnet. I saw that lead fund manager James Anderson had been making a huge bet on the big investment story of the decade, US tech and, in particular, Tesla.
My risky Scottish play
What happened when the inevitable tech crash came? We discovered last year when the Scottish Mortgage share price fell by half. While long-term investors were still comfortably ahead, bandwagon jumpers were hurting (aren’t they always?).
Which is when I started to get interested again. I prefer to buy stocks and investment trusts when they are down in the dumps rather than riding high. The aim is to buy at a bargain price then sit back and give it time to recover. Over five or 10 years, I hope to end up nicely ahead.
With Scottish Mortgage trading at a discount of 22% to the net value of its underlying assets, it seemed too cheap to resist so I bought it on 30 May.
Yet I’m not entirely comfortable with my decision. That’s partly reflected by my decision to invest just £2,000, which bought me 294 shares price at 6.79p each. If I was more confident I’d have invested £5,000, my self-imposed max for any investment.
Just over a week later I’m up a whopping £48.02 which would cover my £5.99 trading charge if I sold it today and, believe me, I’ve been tempted. Lately, I’ve been piling into dirt-cheap FTSE 100 dividend stocks, in a bid to generate maximum dividend income. Investing in a high-risk, high-return growth play like Scottish Mortgage brings different dangers.
While I love buying shares or funds after a crash, I usually wait for the dust to clear. Now I fear I’ve bought Scottish Mortgage too soon, because the trends that sent it crashing have yet to play out.
My private concerns
There have been reports of a huge boardroom rows, with departing director Amar Bhide accusing the company of poor governance. There are uncomfortable echoes of the Neil Woodford nightmare, as Scottish Mortgage has also gone big on unquoted holdings, and is now knocking its head against the 30% ceiling set by the board.
While it has reduced its Tesla exposure to 4.3% of the portfolio, it’s heavily exposed to this year’s artificial intelligence mania with ASML and Nvidia both featuring in its top 10 holdings. Elon Musk’s SpaceX is its fifth biggest holding and that could go either way.
Manager Tom Slater is also borrowing a lot of money to make risky plays, with gearing at 14.76%. All of which might have made sense if the US economy was growing fat on a diet of cheap money, but today, it’s flirting with recession.
Having written all this, I’ve decided to hold Scottish Mortgage. But I wouldn’t be completely surprised if I suddenly found myself clicking the ‘sell’ button in the days ahead.
