Scottish mortgage trust: a buy or a trap?

Audaxer

Linton said:

SM has hardly tanked - it has merely returned to the value it first reached just over 1 year ago.  That is the nature of the fund and why it should be bought for the long term only by people who can stand the excitement.  The fund is still showing a 3 times higher return in the past 5 years than a global tracke and 4 times higher than VLS100.

I suppose it will seem to have tanked for those who decided, based on past performance, to invest in SMT in the last few months.

Thrugelmir

Audaxer said:

Linton said:

SM has hardly tanked - it has merely returned to the value it first reached just over 1 year ago.  That is the nature of the fund and why it should be bought for the long term only by people who can stand the excitement.  The fund is still showing a 3 times higher return in the past 5 years than a global tracke and 4 times higher than VLS100.

I suppose it will seem to have tanked for those who decided, based on past performance, to invest in SMT in the last few months.

35% is an uncomfortable hit for some. The realisation of what volatility actually is will be coming home to roost. As investors we all learn from our personal experiences. Stock markets are akin to riding roller coasters. This ride has only just begun.........

Amazin

This ride has only just begun.........

That is so true, considering majority of SMT's stocks are in high growth/high risk/high reward category, I think it will tank further close to march 2020 level. Lot of them are simply over valued  

MaxiRobriguez

Has a major headwind in regards to expectation for longer (and higher) inflation.

Could still fall a further 20-30% from here for me, which would bring it back to where it was pre-COVID roughly.

That's not a reflection of SMT or any like-minded funds (ARK for example), just a reflection of the world as it is, rather than what central bankers and investors want it to be.

Even with potential for further drops, if your strategy is to get exposure to 'the next big thing' then SMT should still be part of your portfolio. Perhaps the days of massive overweighting to it has passed though.

Thrugelmir

MaxiRobriguez said:

 Perhaps the days of massive overweighting to it has passed though.

When overweighting whether it be an active fund or an individual share. I follow events closely. Very easy to get your fingers burnt as falls can be sudden and unexpected. Top slicing profit is a usefull mechanism to adopt. Keeps the portfolio diversified as well.

Now the largest SMT holding. Moderna reports later this month. Having fallen around 50% in recent months. Investors will be hoping for some good news.

adindas

MaxiRobriguez said:

Has a major headwind in regards to expectation for longer (and higher) inflation.

Could still fall a further 20-30% from here for me, which would bring it back to where it was pre-COVID roughly.

That's not a reflection of SMT or any like-minded funds (ARK for example), just a reflection of the world as it is, rather than what central bankers and investors want it to be.

Even with potential for further drops, if your strategy is to get exposure to 'the next big thing' then SMT should still be part of your portfolio. Perhaps the days of massive overweighting to it has passed though.

It could happen when Russia Invades Ukraine. As many of the EU countries energy supply depend on Russia, the energy price in the EU is going to the roof will result in a very high inflation. This could be magnified when the US fail to control inflation. Not to mention if there is a new deadly variant of COVID is emerging.

IMO in this occasion, worse could happen, not just crash but it might be followed by a realtively long bear market until the next recovery.

MarkCarnage

Bravepants said:

Thrugelmir said:

Bravepants said:

Can someone please explain to me the attraction of SMT?

A belief that the management team will identify the next Tesla at a very early stage. 

So it's not really a long term hold, with such a low yield there is little benefit of compounding by the re-investment of dividends.

Not at all...the benefit of compounding comes from reinvested cash flows by the companies held within the fund, or the willingness of external investors to provide equity funding in expectation of well above average, and more importantly, well above expected, growth in revenue and profits. Berkshire Hathaway didn't pay dividends either.

SMT performance was in significant part down to Tesla in recent times, but the holding was initiated about 9 years ago so hardly jumping on a bandwagon. It was also reduced a fair bit a year or two ago, and reinvested elsewhere. 

It's certainly true to say that investors do hope that the management team will identify the next Tesla at an early stage. Look at the recently acquired modestly sized holdings and see if you think you can see the next one there! 

Thrugelmir

MarkCarnage said:

Bravepants said:

Thrugelmir said:

Bravepants said:

Can someone please explain to me the attraction of SMT?

A belief that the management team will identify the next Tesla at a very early stage. 

So it's not really a long term hold, with such a low yield there is little benefit of compounding by the re-investment of dividends.

 Berkshire Hathaway didn't pay dividends either.

US tax legislation has been more favourable to capital gains rather than dividends for a very long time. People often assume it's to do with growth which it isn't. US companies have bought back enormous amounts of their own stock over recent years.  

MarkCarnage

Thrugelmir said:

MarkCarnage said:

Bravepants said:

Thrugelmir said:

Bravepants said:

Can someone please explain to me the attraction of SMT?

A belief that the management team will identify the next Tesla at a very early stage. 

So it's not really a long term hold, with such a low yield there is little benefit of compounding by the re-investment of dividends.

 Berkshire Hathaway didn't pay dividends either.

US tax legislation has been more favourable to capital gains rather than dividends for a very long time. People often assume it's to do with growth which it isn't. US companies have bought back enormous amounts of their own stock over recent years.  

Agreed. However, Buffett always said that he preferred to reinvest in most of the BH umbrella of businesses.
It has distorted things though, and along with the deductibility of interest from taxable profits, and management incentives based on EPS growth, it may contribute to over leveraged balance sheets in some cases. 

Thrugelmir

MarkCarnage said:

Thrugelmir said:

MarkCarnage said:

Bravepants said:

Thrugelmir said:

Bravepants said:

Can someone please explain to me the attraction of SMT?

A belief that the management team will identify the next Tesla at a very early stage. 

So it's not really a long term hold, with such a low yield there is little benefit of compounding by the re-investment of dividends.

 Berkshire Hathaway didn't pay dividends either.

US tax legislation has been more favourable to capital gains rather than dividends for a very long time. People often assume it's to do with growth which it isn't. US companies have bought back enormous amounts of their own stock over recent years.  

Agreed. However, Buffett always said that he preferred to reinvest in most of the BH umbrella of businesses.
It has distorted things though, and along with the deductibility of interest from taxable profits, and management incentives based on EPS growth, it may contribute to over leveraged balance sheets in some cases. 

BH is a complex web of companies. Buffett is now simply the main public face. There's competent lieutenants handling day to day operations.