Scottish Mortgage presents quite the predicament to investors. There are undoubtedly a lot of people not invested in the trust wondering how they can invent a time machine to go back a few years and hit the "buy" button. Others might have sold their shares a while back having made a tidy profit, and assuming (wrongly, it turns out) that the stellar run couldn’t continue. And then there are those still invested, wondering whether to sell while the going’s good or hold on for more.
While I’m all for buy and hold, when an investment gains more than 100% in a year – and a year of a global pandemic to boot – and has delivered annualised returns of 39% over five years, you really have to ask: how long can this go on for?
For the record, I’m in the first camp. I have never invested in Scottish Mortgage because every time I have considered doing so, I have decided that the tech and growth rally must surely be nearing its end. I’ve always had other tech-specific and growth holdings and have been nervous about upping my exposure to those trends, and the contrary part of me tries not to back favourites – especially after they’ve already had a good run.
But, says a small part of my brain, what if it returns 100% again this year?
Is there any reason why it shouldn’t? Sure the share price of its top holding, Tesla, isn’t likely to rocket 700% again but there are other exciting names in the portfolio.
I think this is where having your own set of investing rules comes into play, and helps you avoid getting sucked into the hype. Fund managers have a process for selecting their stocks, and while yours may not involve teams of analysts and meetings with CEOs, you can still have a few investment principles that you stick to.
Here are some of mine:
1. Do you believe in the manager and the process?
2. Does the portfolio overlap considerably with other funds in your portfolio?
3. Are you just investing in this because everyone else is?
While number 1 is a “yes” for me, 2 and 3 are too, which probably means it’s best for me to stay away for now, no matter how tempting. I guess I’d better get working on that time machine instead…
Big Pharma Does the Right Thing
While we know that news headlines are not a good source of investment ideas, the rollout of the Covid-19 vaccination does seem to make a compelling case for investing in some of the pharma giants.
Lucky, then, that I have Morningstar analysts to keep me in check. Because they reckon most of the healthcare stocks are looking pretty richly valued right now.
While the coronavirus vaccine is set to make billions for some of these firms this year, it could be a pretty short-lived phenomenon, especially if herd immunity is achieved.
One particularly interest aspect at play here is the pricing. A drug company that can solve a global pandemic could easily clean up on costs, you might assume, but this is an instance where we can see ESG at play on a grand scale. Because it would be morally wrong of these companies to profiteer right now; to price their treatments so highly that poorer populations could not access them and to add to the already rapidly spiralling public debt piles that have been created in dealing with this mess.
This is the “S” in ESG at play, the social element. The concept that if a business does X, it will harm society and its reputation will be damaged. I can’t help thinking that just a couple of decades ago a company would not have passed up such a ripe opportunity for profiteering.
In a pretty bleak month where I can’t see an end to lockdown, that makes me feel hopeful for the future.
Disrupting Lager
Have you been doing Dry January? Hats off to you if you have. I did it last year but had I known January was going to be one of just two months of 2020 in which I would able to go into a pub, I might not have bothered.
While other nations are known for their sophistication, their philosophers or artists, us Brits are known to enjoy a tipple or two. So it must have been a real shock to the big drinks companies when people started swearing off alcohol for months at a time.
As with any agile business, they have adapted – and some of the 0% beers these days are really quite delicious. When we think of innovation and industries being disrupted, we typically think about tech and data and flying cars, not a pint of lager. But movements such as Dry January show that even the simplest of products can be shaken up.
