Earlier this month, the Scottish Mortgage Investment Trust (LSE: SMT) share price sank to 816p. For perspective, it hadn’t been this ‘cheap’ since September 2020. Today, I’m speculating whether the worst might be over for the FTSE 100 member and its holders (of which I’m one).
So the bottom is now in?
Obviously, no one can say for sure whether we’ll see a new low in the Scottish Mortgage Investment Trust share price (or any other stock for that matter). There are simply too many factors to take into account in order to come up with a reliable near-term forecast.
Besides, adopting a Foolish mentality means I’m only really concerned about building a nest egg slowly but surely over the long term. Seen purely from an investment point of view, I don’t need to take the awful conflict in Eastern Europe into account, nor where inflation is going next or any other ‘known unknown’.
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However, there are a few things I reckon we can be a little more confident about.
Reasons to be optimistic
First, SMT’s share price is now almost 25% below where it stood at the start of 2022. Are the stocks it holds in the portfolio 25% worse businesses? I don’t think so. Even the most successful companies can see their valuations yo-yo as the market switches from fear to greed and back again. The question to ask is whether the fundamentals of retail titans like Amazon, pharma firm Moderna, or luxury goods maker Kering have really changed. I just can’t see it.
Second, Scottish Mortgage Investment Trust’s managers clearly know a good company when they see one. That’s why the share price is still up 170% or so since March 2017. This compares favourably to the frankly derisory 2% fall of the FTSE 100. No, past performance can’t guarantee anything. But it is just about the best thing we have with which to judge the performance of those we trust our savings with.
Third, innovative companies — the sort that SMT’s managers like and invest in — won’t suddenly stop innovating. This is why I simply can’t bring myself to get involved in the rotation to ‘value stocks’ that we’ve seen over recent months. Yes, airlines and banks might enjoy a brief period in the sun. However, their cyclical nature means the returns they generate will likely remain poor by comparison.
Nothing is risk-free
By now, you’ll probably guess that I’m confident the Scottish Mortgage Investment Trust will eventually recover. And then some. As such, I think now is as good a time as any to continue adding to my portfolio here. Bar an absolutely seismic event, I think the bottom has already been seen.
This is not to say that there aren’t drawbacks to investing now. In contrast to the sensational yields on offer elsewhere, the trust pays virtually no income to holders. That’s entirely understandable. SMT owns businesses that are focused on re-investing profits for even bigger returns later down the line. However, it does mean I’m not really being compensated for my patience.
On top of this, it’s inevitable that a certain number of the companies will disappoint and not achieve the growth they once hinted at. Still, the fact that Scottish Mortgage Investment Trust is diversified across a number of sectors helps to protect investors like me from this eventuality.
