If I had invested in shares in Scottish Mortgage Investment Trust (LSE: SMT) a decade ago, I could now be sitting on a very tidy profit. During that time, Scottish Mortgage shares have increased in value by 467%. So an investment £2,150 back then would be worth £10,000 today. That is despite the share price falling 32% over the past 12 months.
On top of that, Scottish Mortgage is one of the most consistent dividend payers on the stock exchange. It last cut its payout before the Second World War.
While the dividend yield is a measly 0.5%, that is based on the current share price. If I had added the shares to my portfolio a decade ago, they would now be yielding me 2.2% annually of my original investment.
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Paper losses and long-term investing
However, past performance is not a guide to what may happen in future. After all, if I had bought Scottish Mortgage shares a year ago hoping its run of success would continue, I would now be nursing a paper loss.
That is part of investing. I do not pay too much attention to paper losses in my portfolio. Shares mover around in price. But my focus on a long-term investing strategy means that I am focused on whether I can buy into businesses today at a discount to what I think they will be worth years from now.
Can Scottish Mortgage shares bounce back?
On that basis, if I had spare cash to invest now, I would add Scottish Mortgage to my portfolio. I continue to see risks, such as a fall in the price of tech stakes held by the trust hurting its net asset value and share price.
But I also see opportunity. In the past, astute choices by the trust managers have seen shareholders benefiting from early stage investment in massive growth stories like Tesla.
As a strategy, that has worked in the past and I think it can continue to work in the future. On that basis, I expect Scottish Mortgage shares to bounce back. I do not know what they will be worth a decade from now. But I think it may well be higher than today’s price.
Drivers for the share price
Whether that happens, though, will ultimately depend on how the trust managers decide to invest.
They have set out some core themes they are using, such as digital technology in healthcare and decarbonisation. If they can find young-but-great businesses in those areas that are attractively priced, that could help the long-term performance of Scottish Mortgage shares.
Even if some of their picks turn out to be duds, shareholders might still do well. The investment trust structure means that the firm offers me exposure to a diversified portfolio spread across dozens of stocks. If only a handful of them turn out to be brilliant buys, they could still push the net asset value up sharply. That was seen by the outsized role Tesla played in the trust’s performance over the past decade.
