At some points during the past few years, Scottish Mortgage Investment Trust (LSE: SMT) was a stock market darling. From its early and very lucrative investment in Tesla to the strong performance in the Scottish Mortgage share price, the trust’s performance looked excellent.
But things have been going less well of late. Scottish Mortgage shares have lost 40% of their value in the past year. So does that make them worth buying for my portfolio?
Price and value
The first thing to note is that simply because a share is cheaper does not on its own make it good value. Something that has got cheaper can always get even cheaper. So I look at the value of a share not just its price. In other words, I focus on what I think it ought to be worth.
In the case of a trust like Scottish Mortgage, investors know to some extent what the shares are technically worth at any moment because it publishes a net asset value of its holdings. At the moment, the Scottish Mortgage share price trades at roughly a 10% discount to its net asset value.
In itself though, that does not mean I think it is good value. The trust owns shares in unlisted companies like SpaceX, so establishing their value is often an imprecise science. On top of that, the share prices of companies in which the trust invests are just that. A price. They may also not reflect the full value of companies like Tencent and Moderna.
In order to establish whether investing in the trust really offers me value, I need to look at the list of companies in which it owns stakes (available on its website). Then I can dig into those businesses in more detail and see whether I think their future prospects are fully reflected in the price for which they trade today.
How to value Scottish Mortgage shares
Looking through the trust’s portfolio, I do see some shares I think are undervalued. It remains heavily invested in tech shares, many of which have seen their prices crash. But I think long-term demand for some key tech platforms in which Scottish Mortgage has invested will grow.
On top of that, Scottish Mortgage offers me exposure to a stockpicking approach with a track record of success. That is no guarantee what will happen next and indeed the long-term investment manager left this year after decades in the role.
But I think the frequent success Scottish Mortgage has had at identifying compelling growth stories in their early stages reflects more than the efforts of a single mind. The tech fall has certainly taken a toll on the Scottish Mortgage share price. But the trust’s skill when investing in the next big thing continues to attract me to it.
My move
At its current price, I think these shares could offer good value for my portfolio. I like the exposure the trust would offer me to a wide range of shares in different industries, many of which I think have a promising outlook.
As a believer in long-term investing, I would be happy to take advantage of the price fall to buy Scottish Mortgage shares for my portfolio today and hold for years.