My Top 5 Investment Trusts to Own for the Next 20 Years

Sensible investments with Dr John

Dominic here: I’ve been nudging John to write this ever since he joined this Substack, and I am delighted he now has. I, for one, am going to be buying some of these trusts, not just for my own pension, but for my kids’. This is one piece you do not want to miss. There is some really valuable information. Investments you can buy and forget about - the kind of investments we all need. I hope you like it. Right, over to Dr John.

Photo by Brice Curry on Unsplash

Get rich slowly

To me, investing is all about getting rich slowly and not suffering too many losses along the way. A big loss is what panics people out of investing (if you have a financial advisor, they’ll call this a “drawdown” as it sounds less painful).

They ending up buying high and selling low. You need to be able to suck up the losses and keep faith that you’ve invested in a long-lived trust with good management.

Lessons from the Asian Crisis

I remember reading on a chatroom in the middle of the 1997 Asian crisis how someone had sold everything, was out of stocks, and were off to buy a farm and were now happy they could sleep at night. I suspect that they were indeed happy for a few months, maybe a year. Did they ever buy back in? I doubt it.

You can clearly see the Asian crises in this chart here, of Templeton Emerging Markets (LSE:TEM), err, right? Well, maybe not. TEM bottomed in September 1998. Since then, it’s up over 10-times since. And it’s not even a great performer. 

Longer-term, that crash looks like a blip. And it really was a crash. In Asia (where I worked a lot in the late 90’s and early 2000s) it really was a big thing, for most there bigger that the West’s GFC in 2008/9. Currencies crashed, companies went bust, no one in Asia had any money.

This chart of TEM is from the 5 years before the Asian Crisis to the present day. It bottomed at roughly 11.5p in September 1998. 4 years earlier it had peaked at 32p. A roughly 60% fall.

Buy cheap stocks and use good fund managers

I remember buying TEM around 13.5p. I telephoned TD Waterhouse (now Interactive Investor, and in those says it really was telephone dealing). I bought 50000 shares a day for several days. At 17p, 15.5p, 13.5p. I felt like a fool ordering shares that were 10% cheaper than my order the day before. TD Waterhouse was a smaller operation then and the telephone dealers knew me. “What an idiot,” I suspected them of thinking. (Having sat at a traders’ desk on a private tour of MF Global, before they went bust, I’m pretty that that’s exactly what they were thinking).

I’ve held TEM shares ever since.

Since the 1997 lows the returns have been 11% per annum with dividends. It’s important to note that TEM is not an abnormal outlier – in fact its performance has been pretty pedestrian. Lots of funds do this, compounding reasonable returns over many years.

Longer-term if you invest in something that gives you between, say, 8% and 12% per annum, year in year out, you’re doing OK.

(If you can get 12.2% per annum, every £1000 invested in 2003 is now worth £10,000 today. A ten times return in 20 years.)

Strategy for a 20-year portfolio

So, what would I buy now for the next 20 years?

My criteria for building a list of investment trust investments are:

1. Buy at a reasonable price, preferably when stocks and that sector in particular are out-of-favour. That sometimes means poor recent 5-year returns, not good ones. Three of the trust I mention here are well of their highs.

2. Buy into a fund that already has a 15-year-plus track record.

3. Buy a manager where you never feel the need to sell, that is never get panicked out. Keep your confidence in good management and keep your position size to a level that allows you to sleep at night.

4. Buy a management team not a manager. A star manager will eventually retire or, worse, just tire. If you don’t believe me google Neil Woodford. (Next time, I’m going to produce a list for the next 5 years using star managers. They have their place.)

5. Buy some different assets, so if Fund X (Asia, e.g.) crashes another Fund Y (bonds) might shine. If you wake up at night worried about Fund X, you’ll remember Fund Y and fall back into confident sleep.

My 5 funds for the next 20 years