As a long-term investor, my focus is on how stocks perform over the long term. In that case, I think Scottish Mortgage Investment Trust (LSE: SMT) has a lot going for it. Scottish Mortgage shares have fallen by 37% in the past year.
But it is 56% higher over five years, more than 450% in five years, and 760% since the millennium. The trust’s records stretch back: it last cut its annual dividend 90 years ago.
The past is no guide to the future. While Scottish Mortgage shares have been very rewarding in the past, that may not be the case in the future. On top of that, as an investor, I have to consider the risks that can be attached before I invest in shares.
So, how does Scottish Mortgage factor into my analysis?
The past is not a guide to the future – but it can still give us clues about what the future may hold!
As an investment trust, Scottish Mortgage employs fund managers to allocate its funds to various companies. It offers me many benefits to be an investor. Not only can I expose myself to a diverse organization by buying shares in the investment bank, but its managers are pushing for the next big thing. Maybe they know some good ideas that I miss myself.
They are also looking beyond the stock market. For example, the trust has a stake in SpaceX that has not been listed – something I would struggle to buy even if I wanted to.
Recently, this process has not been very good, as shown by the sharp drop in the price of Scottish Mortgage shares. A fund manager reportedly called 2022 a “humble years” as possessing as Tesla and Shopify the price drops.
But I see that as the back end of the trust’s strong performance over the past few years.
This success came from investing in biotech early in their development. That worked well for a few years. But since such technology has fallen, so has Scottish Mortgage because of its heavy exposure to the sector.
Owning shares in an investment account can offer me diversity. Its funds can be spread over several companies, as is the case for Scottish Mortgage.
But ranking itself is no guarantee of good rewards. In fact, the fall in Scottish Mortgage shares reflects the fact that it has been announced in each company, but remains exposed in a few business sectors, such as technology and health. The situation continues even after the financial authorities have revised the file in the past few months.
It’s my move
Obviously I see some risks here. Digital prices could fall further, with a knock on shares for Scottish Mortgage.
Despite that, as a long-term investor I am attracted to the long-term risk-to-reward of buying shares of the trust. If I had some savings to invest today, that’s exactly what I would do.
The pole Scottish Mortgage shares can be rewarded. How is the risk? first appeared on The Motley Fool UK.
C Ruane has no position in the shares mentioned. The Motley Fool UK recommends Shopify and Tesla. The opinions expressed in the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our specialized services such as Share Advisor, Hidden Winners and Pro . Here at The Motley Fool we believe that thinking about a lot of different information makes sense we are better entrepreneurs.
Motley Fool UK 2023