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How does a HOUSEWIFE make money in stock markets?

We asked readers to mail their queries about stocks they want to buy, sell or hold. Here's the response to their queries.

Narendar Lokwani of StockFundoo advises about good, bad and ugly stocks.

You can mail your queries to stockfundoo@rediffmail.com.

I am a new trader in business, actually a housewife. Could you please guide me on my stock holdings? Also, could you guide me on how to learn trading?

It's good to see your enthusiasm and interest in this difficult profession, despite being a housewife. Trading and investing are two different beasts and tough business at that. Lot of people confuse and mix-up investing with trading or vice versa.

A concise definition of investing is to buy and hold assets like stock, bond or real estate for long term for wealth generation, whereas trading is flipping the asset in a short time to make a quick profit for income generation.

Just to give a common example, Warren Buffett or our very own Rakesh Jhunjhunwala are investors, in the sense that they buy a company or shares in a company and hold it over many years for wealth generation.

Whereas traders buy a stock or even short-sell a stock and close the position within minutes, hours or days. With the advent of electronic trading, average holding position for stocks is as short as 11 seconds. i.e. computers trading on Wall Street buy and sell within 11 seconds or less to make quick profit.

Please remember that when you are buying or selling a stock, you are directly competing with a large fund house or a proprietary trading desk or a hedge fund, which employs dozens of experts such as fundamental analysts, technical analysts, economists, programmers and also have access to lot of inside information. Retail investors or traders are neither formally trained nor have access to super fast source of information and data.

With all these drawbacks, how does a housewife make money in stock markets?

It is neither impossible nor difficult, but requires a sustained effort on one's part to understand markets and create strategies which work for you. Everyone can win in the markets, simply because nation's economy and companies grow with a decent percentage growth each year. Hence stock markets reflect this growth and generate more wealth each year, which then get re-distributed within investors and traders community as dividends or trading gains or capital gains. So there is money to be made, but how do you get a pie out of this?

First step is to know thyself, whether you are a trader or an investor? It's a good idea to focus on either of these skills, but not on both especially as a beginner. As an investor, you would analyse fundamentals of company and invest for at least 6 to 12 months in a stock for a decent capital gain on your holding. The skills required for an investor are understanding a company's business, ability to read simple financial statements like balance sheet, P&L statement and cash flow statement and some simple financial ratio analysis.

Strategies such as value investing and growth investing would help an investor to make money in an undervalued stock which rest of the market is ignoring. For example, some of the small-caps and midcaps stocks are undervalued in Indian markets currently and one can take a 12-month view to make money on these investments.

As a trader, your world is markedly different.

A trader has only one skill, the ability to read a chart or price action, which is also known as technical analysis. A trader would enter or exit a stock multiple times during a day and aim for quick fire profit making. As a trader, you often don't focus on fundamentals of a company, but select a bunch of stocks which are volatile and move sharply during the day to enter at low price and exit at slightly higher price or vice versa.

Traders can even short-sell or sell a stock, which they don't own to make profit when the stock falls in price.

So, these are two entirely different skills. A stock investor is a careful analyst, poring through financial data and doing days of careful analysis to make a investing decision for medium term or long term, based on company's fundamental and growth. Whereas a trader is a quick doer, who takes split second decisions and buys and sells several times during a day and aims for quick profit by the end of the day.

One should choose either investing or trading, based on his or her temperament and focus on learning either fundamental analysis or technical analysis to profit from stock markets. Everyone can be successful in this field, and only prerequisite is focus, hard work and dedication on your part, and yes, some good luck as well.

Disclaimer: This article is for information purpose only. This article and information do not constitute a distribution, an endorsement, an investment advice, an offer to buy or sell or the solicitation of an offer to buy or sell any securities/schemes or any other financial products /investment products mentioned in this article or an attempt to influence the opinion or behavior of the investors /recipients.

Any use of the information /any investment and investment related decisions of the investors/recipients are at their sole discretion and risk. Any advice herein is made on a general basis and does not take into account the specific investment objectives of the specific person or group of persons. Opinions expressed herein are subject to change without notice.

StockFundoo.com provides insightful and in-depth capital markets analysis. Powered by fundamental deep value investing and technical analysis, we offer detailed stock analysis updated on a daily basis.

How does a HOUSEWIFE make money in stock markets?

I have bought 150 share of Titan at Rs 290, Now the current price of this share is Rs 262/-. What do I do with this share - HOLD or SELL?

Titan Industries had a good December quarter and it reported robust growth numbers in the recent quarterly earnings. The firm reported 24.29 per cent increase in its standalone profit after tax for the quarter ended December 31, 2012, at Rs 203.73 crore, compared to profit after tax of Rs 163.91 crore in the corresponding period previous year.

The standalone net income during the third quarter also went up by 23.68 per cent to Rs 3,017.80 crore from Rs 2,440.10 crore in the year-ago period.

However, looking at charts one can sense the disappointment of investors.

The stock had a fall from recent highs of Rs 312 to levels of Rs 260. Why this incongruency exists in markets, when the company is making good profits, but has a stock which is falling in price. This is simply because of investor expectations mismatch, which often surpasses the true value of the company and stock price overshoots, only to fall back later as insiders and informed large investors sell at highs. This results in some retail investors getting trapped at higher levels.

In your case, your investment at Rs 290 is close to Titan's recent highs. One would advice holding the stock as its support level of Rs 256 is nearby. One can hold the stock but needs to exit at your cost price or at small profit whenever the recent highs are revisited.

Currently the chart is making a Head and Shoulder kind of technical pattern, which is bearish, but often fails in Indian markets. So hold with caution, with a stop-loss of Rs 256 and aim for recovering your cost price in next 3-6 months.

How does a HOUSEWIFE make money in stock markets?

I have 100 shares of MMTC @ Rs 800. Currently it's trading around Rs 535. Though, the past performance of this scrip is stupendous. Should I hold or sell? I have a time horizon of 1 year more for this scrip. Why has this stock taken so much beating?

MMTC is a unique firm, one because it's one of the largest bullion and metal trading companies in whole of Asia and secondly because 99.33 per cent of the firm is owned by Government of India. MMTC had a glorious run in the past as it had sole control over trading of precious bullion like gold of which India is a huge importer and exports of metals such as iron ore, of which India is a large exporter.

Iron ore export in last year has suffered a death blow with Supreme Court ordering a ban on iron ore mining, due to large scale graft allegations. This reflects in fall in revenues for MMTC, as September 2012 quarter revenues were barely Rs 8800 crore, whereas March 2012 annual revenues were as large as Rs 66,000 crore, which translates to a approx Rs 16,000 crore quarterly revenues. Hence topline has declined by almost 50 per cent for MMTC, due to recent ban on iron ore mining and exports. Firm is also posting losses in recent quarters, which is also adding to stock woes.

However, significant overhang on MMTC stock prices is the government's decision to disinvest partly in this mini-ratna. 99.33 per cent of the firm is currently owned by GOI and divestment will be of the tune of 9.33 per cent which is large chunk of liquidity suddenly coming into the stock, after being a low float stock for a very long time. When large chunk of liquidity comes into the stock, its true value gets discovered in the market.

Government is providing significant discount on most of its recent disinvestments such as Hind Copper, NTPC etc, and hence MMTC might be a discount case as well. That affects the existing investor morale and stock takes longer time to reach to its prior highs after new liquidity gets absorbed during the course of time. Current support levels are at Rs 440, which looks to be a level which might come soon for this scrip. However, since you are in deep red already, selling at these lower levels do not make sense for you. One can hold with Rs 440 as stop loss and hope for turnaround in next 6 to 12 months. Rs 1000 can be a good long-term target for the stock once the ban on iron ore mining and export is removed. New investors should wait for government disinvestment price to take a fresh position in the stock.

How does a HOUSEWIFE make money in stock markets?

I have position in following four stocks. I can hold for next six month, kindly guide on their prospects.

Hindalco: 160 shares@ Rs 124

LIC Housing: 100 shares @ Rs 278

United Phosphorus: 50 shares @ Rs 132

Jain irrigation DVR: 100 shares @ Rs 42

Metal stocks such as Hindalco are overall going through a soft phase currently as slowdown in global economies hits metal vehemently. With construction space slowing down, and infra space in limbo, metal sector turns out to be a high-beta and volatile space and stocks do a lot of price ups and downs depending on news flows.

Technically speaking, Hindalco is close to its support at Rs 105 and this support is unlikely to break. One can hold with a stop loss of Rs 100, keeping a slight margin, and one can hold this stock for first target of Rs 130, and subsequent targets of Rs 163, and Rs 188 in next 6 to 12 months timeframe.

LIC Housing Finance would benefit from the current declining interest rate regime in next one year. As interest rates fall, more consumers would line-up for home-loans hence banks and financial companies would see greater business and profits.

However, some of this is built in stock price already, as on charts a huge double top at Rs 300 is evident. The support is only at Rs 240 levels, and I would suggest exiting the stock at minimal loss currently and taking a position at lower levels. Only when Rs 300 is crossed, one can see fresh highs for this scrip.

United Phosphorus is near to its support levels of Rs 105 and hence is a low risk stock to hold currently. The stock oscillates between Rs 105 and Rs 170 levels and one can take a position at lower levels and book profits close to Rs 170 on this scrip.

Jain Irrigation Systems had allotted one bonus DVR for every twenty ordinary shares held by the existing shareholders. However, the ordinary shares performed stronger in comparison to DVR offering, as lot of investors exited the DVR to average their cost in ordinary shares. Internationally, DVR shares trade at a discount of 10 to 12 per cent to common shares of a given company. In this case, the DVR is at a steep discount due to low news coverage and investor interest. It makes sense to do a little bit of arbitrage play here and hold on to DVRs as they are available at steep discount to ordinary stock of Jain Irrigation. However, their fortune will only revive if the fortune of the parent firm revives and ordinary stock also rebounds, which is also in strong bear grip currently. Nearby support levels are at Rs 34 and Rs 31 for the DVR respectively.