Kareem from Share here. When we started building this product, we had a few goals. First, make investing easier / simpler / less time consuming for regular people. Second, build a product that helped consumers apply sound investing principles and avoid some of the most common investing pitfalls (market timing, lack of diversification). We felt that existing products encouraged, through gamification, some habits that may have put their bottom lines over their customer’s best interests (not naming any names).
Some of these pitfalls are easier to handle than others. Market timing can be solved by dollar cost averaging. Diversification can be solved by making it easy to buy many stocks at once. Both of these are about buying. But there’s another pitfall… when to exit a position (sell a stock). Take a look at the following charts (nicely presented in the Share app, available on iOS and web 😉).
Notice a pattern? They all go way up… and back down. In some cases back to where they started from. We call this “round tripping”. When you get in a stock, ride it up to a massive high, and hold all the way back down.
There are worse things than round tripping, for sure. You could just lose a bunch of money. But it would be nice if, along the way, you could take some profit. This can be difficult. For one, it’s hard to know when to sell, emotionally that is. Cause of FOMO. What if it’s going up more? Are you going to sell too early? For another, maybe you don’t check your stock portfolio every day (you probably shouldn’t, tbh) so you may not even know how well it’s doing.
Our latest feature is designed for just that. Automatic profit taking. We think it’s one of the most useful parts of Share, and we haven’t seen it anywhere else. Here’s how it works.
Step 1: Pick (or create) a Strategy
First, you need a Share Strategy. On Share you don’t just buy a random stock. You invest in a strategy. A Strategy can be anything, but generally it’s a group of stocks that share something in common. Like maybe they are all semiconductor companies, or Nancy Pelosi owns them, or maybe they all pay dividends.
Whatever it is, you need a Strategy to apply a profit target. Once you have a Strategy, you can apply a Profit Target to it.
Step 2: Create a Profit Target
A profit target is a percent return at which you’d be happy to take your money out. It could be anything, from 20% to 2000% (or more). Once you set your profit target, Share will automatically monitor all the stocks you own in the Strategy to see if the market price meets your profit target. If it does, those stocks will be sold automatically. Pretty cool, right?
But there’s more. As you may recall, Share is a dollar cost averaging app - investments happen every week. Let’s say you have a Strategy with Apple, Tesla, and Google (just for example) and you’re investing $30 a week, then each week you are investing $10 in each of those stocks. This means, each week you have a new bunch of shares (or “lot”) with a new purchase price. So Share doesn’t just track your overall position in a stock, it tracks each individual share lot, and sells just the portion that achieves your profit target. The rest is held.
If you’re curious about the math, below is an example. If math isn’t for you, skip ahead.
Start of math.
Say you buy $100 worth of Apple stock at two different price points: $100 and $125. Now you have two bunches of Apple stock, 1 share purchased for $100/share, and 0.8 shares purchased for $125/share, for a total of 1.8 shares. And let’s say you create a 30% profit target.
This means we want to sell the 1 share you bought for $100/share at $130 (or more) and we want to sell the 0.8 shares you bought for $125/share at $162.50 (or more).
If the prices rises to $135, Share will compare it to your profit target, see that 1 share is eligible for profit taking, and sell that 1 share. The 0.8 shares will be held, until (if) a price of $162.50 is available.
Math over.
Ok, so you can take profit automatically. Great, but then what? Where does the money go, you might be wondering. We’ve got an option for that too.
Step 3: Set a Destination
Once you create a profit target, you can set a destination for those profits. To start, you can either put them in your Share account with the rest of your cash, and we’ll just use them to power your weekly investments. Or, you can direct them into a specific Strategy (the same one, or a different one) and we will invest them in that Strategy in addition to your weekly investment. Check out the screenshot below.
This can be useful for moving from a higher risk to a lower risk investment (for example, moving profits from tech stocks to the S&P 500), or moving from something high-growth and concentrated to something more stable, like electric vehicles to blue chip stocks (just examples).
And that’s it. Now every stock in my Monopolies Strategy will be monitored for profit opportunities at 50% or better, and reallocated to my Dividend Yield Strategy.
Now, Share isn’t an investment advisor, so we don’t give investment advice, and are not recommending any profit target (or even that you should set one). But we do think this is a powerful feature that can help save you time, and make decision making easier, if you are trying to figure out when to exit a position.
Thanks for reading!
-Kareem
p.s. did you know we have a Slack community? join us to share product feedback, hear about new features, and learn about investing