Long-term investing in a nutshell

Did you know that tree cover in the Scottish Highlands was once so dense that it is said a red squirrel could travel from east coast to west, without once touching ground? Today, sadly, times are tougher for this native species. They have to grapple with and respond to new threats, such as the loss of their arboreal habitat and disease spread by their grey cousins.

An environment of insecurity – in which we evaluate new threats and respond – is something humans share with this well-loved animal. After Covid-19 hit, global economies experienced the worst recession in living memory, and the fear of prolonged lockdowns created febrile milieu for many global stocks.

Taking a dispassionate, contrarian view

It’s easy to understand why investors respond by retreating to the safety of the crowd. Herding, or crowd behaviour, gives the illusion of safety. But it can also lead to unprofitable investment decisions: buying in to a stock at the worst possible time. This is when investors often make emotional investment decisions, driven by greed or fear.

As contrarian investors, we challenge the wisdom of the crowd – looking for the point at which fellow investors are at their most despondent. But we’re not merely looking for unloved stocks. It’s essential that they offer a good balance between risk and reward and also have a tangible catalyst for improvement. This can come in many forms: fresh management, a new strategy or business model, activist involvement, merger and acquisition activity or, more recently, exposure to economic recovery.

It helps, of course, that we have time and patience on our side. As long-term investors, we’re not looking to make a quick buck. Instead, we’re interested in genuine improvement. Often, the stocks we invest in also pay a healthy dividend through the cycle, giving us an income while we wait for the broader market to recognise the company’s merits. This approach has proven successful, and our dividend yield is currently the most attractive in the peer group. However, it should be remembered that dividends are not guaranteed and can fall as well as rise.

The benefits of the Trust

It goes without saying that there are myriad options available to people who wish to invest in equities. For SIPP investors, who would like to squirrel something away to enjoy a secure and comfortable retirement, a contrarian approach to investing offers a potential element for a diversified pension portfolio. Actively managed and independent, ours is a closed-ended vehicle that has served investors since 1887. Its structure allows us to make high-conviction, long-term investment decisions in the best interest of our shareholders.

In terms of fees, the Trust’s ongoing charges figure (OCF) is one of the lowest in our peer group. Fees erode investors’ returns over time, so this is an important consideration. Diversification is also key to our approach. And like the squirrel who often makes several nests to bamboozle predators, and as a safeguard against damage, we spread risk by creating a judiciously chosen mix of investments in which we have a strong conviction.

If you’re interested to learn more about The Scottish’s contrarian investment approach, and some interesting opportunities that lie ahead in a sustained reopening – follow the related content links further down this page.

Please remember that past performance may not be repeated and is not a guide for future performance. The value of shares and the income from them can go down as well as up as a result of market and currency fluctuations. You may not get back the amount you invest.

Please note that SIT Savings Ltd is not authorised to provide advice to individual investors and nothing in this article should be considered to be or relied upon as constituting investment advice. If you are unsure about the suitability of an investment, you should contact your financial advisor.