The Scottish Mortgage Investment Trust (LSE: SMT) has a good track record when it comes to spotting the next big thing in tech. From Tesla to MercadoLibre, the Edinburgh asset manager has had its eye on the ball in tech markets around the globe. But over the past year, Scottish Mortgage shares have fallen 39%.
Down almost two-fifths, does this present me with a buying opportunity to add the stock to my portfolio in anticipation of the next tech boom?
Tech booms and busts
The appeal of tech from an investment perspective is clear. If a company can spend money developing a service and then expand its user base massively with low marginal costs, the profits can be considerable.
That helps explain why lots of money has poured into tech shares. That has been true in the past few years. But it was also the case in the dotcom boom and before that, the Nifty Fifty group of US shares back in the 1960s and 1970s.
In other words, the tech story seems to appeal in its own way to every generation of investors. Once prices peak, momentum falters and investors are scared away for a few years. But that does not mean that the tech model itself is any less attractive as a business. Looking at key Scottish Mortgage holdings such as ASML, Amazon, and Tencent, I reckon some tech names are more hardwired into the daily lives of people around the globe than ever before.
Why Scottish Mortgage shares have fallen
Despite that, many leading tech shares have fallen over the past year. Some of them looked overvalued, so it is understandable why there has been a pullback in the sector.
As Scottish Mortgage is an investment trust, its valuation is basically tied to what it holds in its portfolio. The match is not perfect, but in broad terms Scottish Mortgage shares typically move up or down in line with the shares it owns.
The trust has also seen a change of leadership this year. Given its strong track record – it is still up 90% over the past five years despite recent weak performance – some investors are concerned that new managers may not do as well as their predecessors. But the trust is over a century old and has not cut its dividend since before the Second World War. I do not worry about a change in operational leadership.
My move
In fact, I reckon the trust’s proven prowess in identifying promising growth stories at an attractive stage could continue. We may need to wait for another tech boom to see the full benefits of that – but that is why I think getting in now could make sense for me.
That way, I can benefit from the lower price of Scottish Mortgage shares and hold them for the long term.