Since Scottish Mortgage Investment Trust (LSE: SMT) shares peaked in late 2021, they’ve halved in value.
The trust invests mostly in US tech growth stocks, the kind listed on the Nasdaq. And that index was dumped by investors. So what’s the lesson to learn?
Keep away from risky growth stocks and stick to the safety of a nice FTSE 100 tracker? No, there’s a lesson for me, but it’s not that.
Growth shares, no different
Over the past five years, the Scottish Mortgage share price is still up 72%. The Footsie, just 13%. So £10,000 in the investment trust would have turned into £17,200 today. That wipes the floor with the tracker I mentioned, even if we add in FTSE 100 dividends.
The real lesson for me, is that growth stock investing is a long-term thing. Just like buying any stocks and shares, really.
Growth investing can bring more chance of short-term gains. But along with that comes greater risk and more chance of short-term losses.
Risk and reward
You know, looking at the volatility of some of these high-flying techie stocks, it makes me think the long-term thing might be even more important when it comes to growth stocks.
Take Tesla, a big growth darling in recent years (and one of Scottish Mortgage’s holdings).
Anyone who bought in October 2021 would have seen a 75% fall by the start of 2023. But those who bought five years ago and held, acting as if the stock market was closed and share prices didn’t matter?
They’d be up more than a 1,000% today.
British bulls
Nasdaq stocks have had a good 2023. But something else gave Scottish Mortgage shareholders a bit of help too. That’s a return to bullishness from UK investors. It shows in the trust’s discount.
Investment trusts publish what’s called their net asset value (or NAV). It’s a figure that represents the valuation, per share, of the things it holds for its shareholders.
In this case, it’s all about the share prices of those international growth stocks. If the trust’s shares are higher than the asset value, we say it’s on a premium to NAV.
And when it’s lower, we have a discount to NAV.
Discount falling
On the latest measure, Scottish Mortgage shares trade at a 9.7% discount. Does that mean investors don’t like the stock?
Well, earlier in 2023, the discount was up at a whopping 20%. Back then, we could buy a pound’s worth of Nasdaq growth stocks for just 80p. Some would say that means we’re getting less pessimistic about it. But I prefer to think of it as more optimistic. It’s the same thing really, depending on how we see the glass.
And I think it could be filling up.
Buy more?
US growth stocks are volatile, risky, and all the rest. But I’d say an investment trust like this can be a great way to buy in.
