Scottish Mortgage Investment Trust (LSE: SMT) shares have slumped, along with Tesla, ASML, Moderna, and all those other US growth stocks the trust holds.
We’re still looking at a 48% gain over five years. But that’s peanuts for a growth investment. And the shares are way down from their 2021 peaks.
Is it time for long-term investors to buy? I see at least three reasons to say yes.
#1: Everyone is selling
Growth stock investors are contrarians, aren’t we? I feel I am when I buy growth stocks.
I’ll never forget once being told: “You sure know how to buy a share after it’s gone up!“
After all, we’re often buying at valuations that could make Warren Buffett wince.
Except now.
Stock markets are shaky, and there isn’t a growth investor to be found. They’re all selling up, and, I don’t know, maybe buying mattresses to hide their cash under.
Isn’t that the best time to buy growth stocks? The best time is not, surely, when everyone is jumping on the bandwagon and pumping up prices.
A couple of years ago, investors were buying Tesla on a price-to-earnings (P/E) ratio of 1,000. Now they’re selling at 35.
Can anyone tell me that’s not madness?
#2: Buying £1 for 80p
Assets values go up and down. When they’re going up, investors will typically pay above the odds to get a stake.
Buying a trust means we can grab a diversified selection of stocks that we couldn’t match buying them individually. And I reckon that’s worth a small premium.
But when they’re falling, a trust’s shares often sell for less than asset value. That’s a discount.
The Scottish Mortgage Investment Trust discount has hit a whopping 20%. So we can buy all those undervalued growth stocks, with an extra 20% off.
It’s almost like being able to buy pound coins for 80p each.
#3: Stock market crash
Meh! There’s not going to be any stock market crash. Or there might be. It really doesn’t matter.
What opportunities have investors wasted over the years trying to time the bottom, and get in when prices are lowest?
Trying to fine tune our timing almost always misses the target.
If a share I like is cheap and I have the money, I’ll buy it. It might get cheaper in the future. So someone else does even better than me, and that’s fine.
And maybe I’ll have saved up more cash and I can buy more.
What I’m really trying to say is that fear of a coming crash shouldn’t stop us buying shares right now if we think they’re good value today. Does that make sense?
Verdict
I’m not trying to say Scottish Mortgage is a risk-free, no-brainer, buy now. US growth stocks could fall further before the rout is over, and the trust could drop even more.
But investing for growth typically carries more risk than going for blue-chip dividends. It just comes with the territory.
And what better time to take the risk than when growth stocks have crashed and look super cheap?
