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Between 2009 and 2021, Scottish Mortgage Investment Trust (LSE: SMT) shares increased over twentyfold in value. A peak price of 1,528p was reached on Guy Fawkes Night in 2021.
After that, they were increaslying tossed on the bonfire as a toxic concoction of macroeconomic events shattered investor appetite for growth stocks. As I type, I can pick up the trust’s stock for just 682p.
However, long-term investors who snapped up the stock anywhere near the start of the last bull market would still be sitting on gains of over 400%. Even after the massive recent pullback!
So, could Scottish Mortgage double my money from here?
The bulls and the bears
Many of Scottish Mortgage’s top portfolio holdings are listed on the Nasdaq in the US. These include vaccine developer Moderna, Tesla, semiconductor equipment giant ASML, and Argentinian tech powerhouse MercadoLibre.
The Nasdaq is still trapped in a bear market, having fallen 27% since November 2021. But the one thing we know about stock market corrections, crashes, and bear markets is that they don’t last forever. So it’s not a case of if but when the Nasdaq recovers.
Why can I be confident about this?
Well, there have been 14 bear markets in the US between 1947 and 2022. The average length of one is just 9.6 months (or 289 days, to be precise). But they can drag on for some time. The longest one on record lasted a full 20 months between 1973 and 1974.
So if history is anything to go by, we could be more towards the end of the current bear market than the beginning.
And it gets better. Since 1929, the average lifespan of a bull market is 2.7 years!
The lesson here then — and why long-term Foolish investing works — is that the bulls outlive the bears.
One stock-specific risk I see is with ByteDance, the parent company of short-form video app TikTok. The US has threatened to ban the app unless the company’s Chinese owners divest their stakes in it.
This is due to fears that US user data held by the company could be passed on to China’s government. TikTok strenuously denies this could happen. The situation is in flux.
But the idea of a ban now has bipartisan political support in Washington, so I think it’s a real possibility.
If a total ban were enacted, the value of Scottish Mortgage’s large private holding in ByteDance would likely take a shellacking. And that could cause volatility in the shares.
Double my money?
Overall though, I think the long-term rewards here could be great. The portfolio is well diversified and can handle the odd failure or two.
Plus, the shares are trading at a massive 17.9% discount to the net asset value (NAV) of the trust.
|Share price||NAV at fair value||Discount|
Looking at this, I’m reminded of the Warren Buffett quote: “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”.
Bear markets don’t last forever. Indeed, they just pave the way for new bull markets. And when the next bull run comes, I believe the cheap Scottish Mortgage shares I’m buying can double from today’s price.