- CAL Asst. VP and Head of Sales Sachin Unamboowe on the importance of being well informed before making investment decisions
Markets are shifting, risks are multiplying, and investors are asking ‘where should money really go? In this edition of ‘Kaleidoscope Dialogues’, we explore the answers with Capital Alliance Limited (CAL) Assistant (Asst.) Vice President (VP) and Head of Sales, Sachin Unamboowe. Unamboowe brings a rich background spanning eco-tourism, economic policy, and health tech with a global perspective and financial expertise, making him the perfect voice to decode today’s investment landscape. His answers were nothing short of eye-opening.
Following are excerpts of the interview:
We have a range of investment choices today. How should we begin to identify the right instruments, choices, sectors? What would these be?
When it comes to investments, it has to do with what we want out of an investment, which is how we identify where to put our money. This can change depending on our circumstances. Someone of a younger generation might look at building wealth quickly, while someone older might look at preserving wealth.
When we are trying to identify sectors and instruments to invest in, first you have to understand why you want to invest. Then, depending on the risk that you are willing to take and the return that you want, you can identify different sectors and instruments. The core is understanding why we are investing and then finding a portfolio to ensure that happens.
What are the most overlooked investment opportunities in Sri Lanka right now?
Generally, everyone in Sri Lanka follows very basic principles of investing. They tend to put their money in fixed deposits (FDs), current accounts, or savings accounts, or they tend to buy chunky assets like property and vehicles. That is very limiting. There are so many other instruments out there.
You can start with unit trusts, there is the stock market, and there are Government securities. All of these are largely overlooked by Sri Lankans. Given our narrow outlook, there are tons of investment opportunities that are overlooked.
Why aren’t people capitalising on these instruments?
It’s a lack of knowledge. Because from a young age, we’ve just not been taught this. What we know, what our parents and grandparents knew, was ‘just put your money in the bank’. That’s the safest thing to do. That’s the reason why we have so many banks for a population of 22 million people. A lot of Sri Lankans don’t know anything beyond the banking sector, which is actually a huge issue in Sri Lanka.
What would be your top three investment choices and why?
I will tell you this from the perspective of a 33-year-old. I have a long working career ahead of me and I can afford to be a little aggressive with my investment choices. Right now, in a low-interest rate environment, my top choice would be the stock market. We’ve seen the stock market grow by about 100 per cent over the last two years. Now, compare that to an FD, which is giving you around 8%. So, the stock market would be my number one.
Secondly, I would look at a unit trust or mutual fund. I use that to manage my liquidity. There are fixed income unit trusts which many in Sri Lanka use. They give you a higher return than an FD, with the flexibility of a savings account.
Thirdly, given that property prices, in US $ terms, haven’t increased from pre-crisis levels to now, if I could afford it, I would look at property as well. Those are my three top investment options right now.
How do you balance short-term gains with long-term wealth creation?
When we look at a portfolio of investments, we need to segregate it into different buckets. Chasing short-term gains comes with its own risk. If something is going to appreciate in value by 50% in the next two weeks, there is also a chance that it can depreciate by the same amount. So, when I look at my portfolio, I would put maybe 10% of my total wealth into those kinds of opportunities – something that could potentially make me a lot of money in the short term but is also risky.
To balance the two, you must understand that anything short term that gives you high returns is also potentially risky. You only put in money that you are willing to lose. Long-term wealth creation should be the bulk of your portfolio – invested in safer, lower-yielding but stable assets.
If you are looking at the stock market, for instance, which sectors would you be buying?
If you think about what we are seeing in the economy post-Ditwah, we are seeing the Government invest significantly on construction. So, construction is a sector that should naturally do well in the next two to three quarters. When the Government spends money on construction, it trickles down from contractors to labourers and into the wider economy. And what do people do when they get paid? They consume.
Around 60% of Sri Lanka’s gross domestic product (GDP) is consumption driven, so, I would look at consumption-driven sectors. Historically, banks and financial companies tend to do well when the economy is growing at four-five%, so, I would also look at the banking sector. For me, the obvious investing sectors in a growing economy are construction and banking.
What are the biggest mistakes that first-time investors make?
I deal with a lot of young people asking for investment advice. The biggest mistakes are, firstly, not doing their own research; secondly, following the trend; and thirdly, not understanding that something offering inordinate returns comes with inordinate risk.
If every bank is offering an FD at 8%, but someone offers 50% that means that that person is carrying much more risk. Understanding the risk-return relationship is crucial. People see higher returns and don’t understand the higher risk attached to it.
How can they avoid these pitfalls?
By thinking for themselves. Not believing everything they see on X or WhatsApp and not following the herd and trying to chase every share that runs in the stock market. Asset prices are dictated by economic fundamentals – GDP, interest rates, inflation. Take some time to understand this.
Information is available at your fingertips. ‘I didn’t know’ is not an excuse anymore. Do your research. Understand what you’re putting your hard-earned money into. If you don’t, your chances of getting burned are much higher.
If someone is too scared to invest, or feels that they don’t have enough knowledge, whom should they go to?
They should go to a professional fund manager. There are companies that manage portfolios of funds. There are instruments called unit trusts, which are professionally managed funds. Even with Rs. 100, you can invest.
There are different types – fixed income, equity, balanced funds. If I invest in a unit trust, the portfolio management is done professionally by a fund manager. I just decide my allocation between equities and the fixed income. The execution is handled by professionals.
If someone is evaluating a company or a fund, what are the red flags that they need to look out for?
When evaluating a professionally managed fund, look at its track record. Over the last five-10 years, has it performed consistently? Then, look at the size of the fund. If one fund is managing Rs. 80 billion and another is managing Rs. five billion, assuming the performance is similar, the larger one usually comes with more stability. When analysing companies in the stock market, look for consistent growth, cost control, and bottom-line expansion.
Sri Lanka has gone through multiple crises in the last decade, yet, some companies have grown through all of it. Those are the companies that you want to look at – not companies that did very well for one year and then became volatile.
Speaking of volatility – geopolitical, technological, environmental – how should investors prepare for it?
We are living in a period of volatility, so, it comes down to how you construct your portfolio. Certain assets act as hedges during volatile times. Gold is one example. Hard assets generally tend to perform better during periods of political or economic uncertainty.
In 2022, when the Rupee depreciated by around 60%, those who held gold or US $ were able to shield themselves to a certain extent. Hence, during volatile periods, increase the allocation to assets that can protect you against that volatility.
What realistic benchmarks should investors set for returns? How should they measure it?
The first benchmark is inflation. If your returns are not beating inflation, then, in real terms, your money is losing value year by year. Then, depending on your risk appetite, you might aim to beat inflation by five%, 10%, or 15%. That depends on how aggressive you are. But, the starting point has to be inflation, and this should be calculated after tax, not before tax.
Would you have any examples of investments that looked promising but underperformed? What lessons were learned?
Yes. There was a major apparel company in 2021 that many people were very optimistic about, and since then has lost about 75% of its value. That’s a significant destruction of wealth. The lesson there is that you have to continuously monitor your investments.
These are publicly listed companies; their financials are available every quarter. If you see performance deteriorating or fundamentals changing, you need to reassess and, if necessary, exit. Monitoring is not optional when you are investing in equities.
If someone has limited capital, what is the smartest way to diversify without diluting potential returns?
A unit trust or mutual fund would be the way to go. Even if you only have Rs. 100 and you invest in a fund that is managing Rs. 80 billion, you are benefiting from the diversification of that larger pool. For someone with limited capital, that makes sense because you get professional management and diversification without needing a large amount of money yourself.
How can people stay informed without being misled by hype?
You have to be careful about where your information is coming from. WhatsApp groups and social media platforms can create a lot of noise and exaggeration. Listed companies publish quarterly financial statements. Unit trusts publish regular fund updates. Those are official sources of information.
Just because lots of people are talking about a particular share does not mean that you should invest in it. You need to understand the reason behind the investment decision.
The writer is the host, director, and co-producer of the weekly digital programme ‘Kaleidoscope with Savithri Rodrigo’ which can be viewed on YouTube, Facebook, Instagram and LinkedIn. She has over three decades of experience in print, electronic, and social media
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The views and opinions expressed in this column are those of the author, and do not necessarily reflect those of this publication