I’m glad I didn’t put any money into Scottish Mortgage Investment Trust (LSE: SMT) shares two years ago.
That’s because £10k invested then would be worth just £4,600 today.
I did buy some later, after they fell a good way. So are they as cheap as I think, and should I buy more?
Growth stock slump
I usually only see five-year charts like the one above for one or two reasons.
Either a company is in big trouble. Or it’s irrationally undervalued and could be a great recovery pick.
I think it’s the latter. After all, we’re talking about the biggest Nasdaq growth stocks in the US here.
Back in 2022, investors turned away from the likes of ASML, Moderna, Nvidia, and Tesla. And as it happens, those are Scottish Mortgage’s four biggest holdings.
Fallen further
The investment trust’s shares soared a lot higher than the Nasdaq in the boom days. And now the bubble has burst, they’ve fallen harder.
We can buy Scottish Mortgage shares at a 16% discount today. That means we can bag a stake in those underlying US growth shares for 16% less than buying them directly.
That’s crazy, right? Well, it happens with investment trusts all the time. And they even sell at a premium sometimes, costing more than the stocks they hold.
What’s the reason?
Still, in the past few months, the discount has been falling. It had been at 20% at one point.
I think the Nasdaq was overvalued, and it did need a correction. But it’s been creeping back, though the investment trust hasn’t followed yet.
So what’s holding Scottish Mortgage shares back?
It might be because investors think the partial Nasdaq recovery could just be a dead cat bounce, and they fear further falls ahead.
Don’t fear the crash
In fact, there are plenty of folks out there shouting about a new US stock market crash that they see coming.
With bond yields rising, I agree that the S&P 500 looks overvalued. If I had to gamble, I’d put money on an S&P 500 correction some time in the next 12 months. That usually means a fall of 10% to 20%.
But some pundits expect a far bigger crunch than that.
These days I’m even seeing calls for a fall in the US index of 60% or worse. And that could cause a big knock-on shock for stock markets everywhere.
Time to buy?
Even if the Nasdaq is undervalued, it won’t matter if there’s a big US sell-off coming. Whatever the cause, whether rational or not, a US market slump could well knock the Nasdaq back again.
And I reckon there’s a good chance that a fear of that is what’s holding UK investors back from Scottish Mortgage shares.
But you can guess what my take on it is, can’t you? Yes, I rate it a long-term buy, even if we might see short-term falls.
Maybe I can come back in 2025 and write about how much £10k in Scottish Mortgage shares today will be worth then. Hopefully a fair bit more.
