Are you looking to get started in the stock market, but don’t know where to start? ChatGPT is an innovative new tool that can provide you with all the guidance and advice you need to start investing in stocks.
ChatGPT can help investors make more informed decisions. It can break down complex financial terms and provide broad advice. The system is limited to information from before September 2021. And has no knowledge of your exact financial situation or market risk tolerance.
We are only beginning to see the benefits of using Large Language models in the financial sector.
CNN recently reported that ChatGPT outperformed several top investment firms in picking stocks during the first part of 2023.
It’s an impressive technology that is being deployed by everyone from hedge funds to personal investors to gain an edge in a world drowning in data.
Let’s look at how individual investors can benefit from artificial intelligence!
How Chat GPT be used by investors
There are a number of ways that investors can improve their investment performance utilizing ChatGPT.
The AI chatbot has been trained on a massive amount of information and lets you quickly compare investment styles and quickly dive into historical events that will help you make better investment decisions by understanding the history of companies that you are analyzing.
We will break down the ways that investors can use ChatGPT from a top-down approach.
Chat GPT can explain investment strategies
There is a wide range of literature available from many successful investors. From Warren buffet to Ray Dalio many have published influential books over the years.
ChatGPT can provide insights on a number of each investors strategy
In our first example, we ask ChatGPT to explain the differences between the investment styles of Warren Buffet and George Soros.
This will help you to identify investment styles and strategies that best fit your personality.
It will also give you an idea of areas that you should research further.
Note: If you’re unfamiliar with popular investment styles, you can describe how conservative you are to ChatGPT and ask it to provide you with influential investors that fit your investment style. The ability to ask ChatGPT follow-up questions is incredibly powerful.
Use ChatGPT to Provide Model Portfolios
The make-up of an investment portfolio will change over-time as market and economic conditions evolve over time.
Once you have found an investment style that you like, ChatGPT can be used to provide a model portfolio as a starting point for research.
In this example, we have Chat GPT recommend a portfolio in the style of Ray Dalio, the founder of Bridgewater Associates.
Going a step further, you can have ChatGPT explain the thought processes that Ray Dalio might use when developing a portfolio. The chatbot will provide a high level explanation of why you would allocate assets in this manner.
Make More Profitable Investment Decisions with New Ideas
While ChatGPT does not have knowledge of the current marketplace, it can provide information on investment ideas during specific market conditions.
Because the information that ChatGPT presents is based on a broad range of opinions from the internet and other public data sources, it represents some level of investing consensus.
For example, we asked ChatGPT which asset classes should be considered or avoided if interest rates are rising rapidly. Its response were the following.
Consider:
- Banks and financial stocks
- Short-Term Bonds
- Floating rate bonds
- Some technology and consumer discretionary stocks
Avoid:
- Long-Term Bonds
- Interest-Sensitive Stocks (Such as utilities and REITS)
- Gold
The full ChatGPT response explains in more detail the reasons why you would want to consider or avoid specific asset classes, but it provides investors with a starting point which will hopefully lead to additional questions that you can dive into for further analysis.
The stock market requires differences of opinion because the disagreements between buyers and sellers create the liquidity necessary for the market to function.
If everyone agreed on a stock’s value, there would be no trading. Nobody would be willing to sell if they believed the stock’s value would increase, and nobody would be willing to buy if they believed it would decrease.
Because of this, all investors should form their own opinions on asset class performance. ChatGPT provides the background to help.
Use ChatGPT to Explain Complex Financial Concepts
It pays for stock traders and investors to stay curious.
We were recently researching George Soros theory of reflexivity to better understand his mental model of the global economy and markets that lead him to being one of the wealthiest hedge fund managers in the world.
If you watch him explain it, it can be a little difficult to follow.
We used ChatGPT as a tool to summarize it. Whenever asking ChatGPT to provide information on complex theories or financial formulas, we will ask it a question with the addition of explain at an 8th grade level.
When prompting ChatGPT you can also ask it to explain as if you had a PhD in mathematics or to explain the financial formulas behind a model.
It’s worth noting that there are some limitations with using ChatGPT for all of your research. Sometimes a picture, graph, or video can also be a great resource when learning more about finance.
We highly recommend the video series by the Swedish Investor on YouTube.
Summarizing Earnings Calls and Current Events
We mentioned earlier that ChatGPT is only trained on data up through September of 2021.
However, with ChatGPT Plus, the paid version of the tool, ChatGPT can search the broader internet using Bing Search. Investors utilizing artificial intelligence can also use Google Bard, which is trained on up to date information from the internet.
With ChatGPT Plus or Google Bard, investors can use ChatGPT to quickly summarize current events. You can even point to a specific webpage like a transcript of an earnings call and ask for a summary.
ChatGPT can help investors quickly identify potential investment opportunities and compare earnings calls from multiple companies in the same sector.
ChatGPT Can Explain Macro Recession Indicators
With all of the talk about recessions today, it is difficult to keep track of it all. While some indicators are lagging, others are leading.
ChatGPT can explain which indicators are traditionally lagigng or leading.
Note: You can also try copying and pasting recent economic data into ChatGPT and ask it to explain the concept or importance of the metric. It can also provide historical ranges for the indicator to give you a baseline context of where things currently stand in the economy.
Using ChatGPT for Financial Analysis
We wrote an in-depth article of performing Financial Analysis using ChatGPT that we highly recommend for financial professionals to learn some new ways to use ChatGPT for analyzing companies.
Some of our favorite use cases are using it for background information on companies.
Recent advancements in AI have enabled full 10-k reports to be loaded into language models, which presents an interesting opportunity for the future of analysis.
AI tools will become a primary research tool for deciphering financial disclosures and footnotes over time, giving management fewer places to hide bad news and poor financial performance.
ChatGPT Plus has a feature called Code Interpreter that will allow users to upload documents and feed the information into the language model to ask questions about. As of writing, the feature has not been made available to the general public.
Risks and Limitations of using ChatGPT to Invest
There are a number of drawbacks to using ChatGPT for investment decisions that you should be aware of. It is not suited for picking stocks in the current market and cannot recommend a purchase price. Here are some additional considerations.
- ChatGPT has outdated information – Not having information built into the model after September 2021 is a large deficiency. It can be mitigated by using ChatGPT plus to invoke Bing or use a different model like Google Bard which has live access to the internet.
- ChatGPT is bad at math – It’s been well documented that ChatGPT struggles with basic math. As an AI model trained on text data it struggles where computers have traditionally been strong. ChatGPT plugins through ChatGPT Plus extend the capabilities of the chatbot to mitigate some of these issues.
- Technical Trading and Analysis is Visual – ChatGPT lacks the ability to generate charts and pictures. Technical analysis is at many times visual. It is difficult for users to learn from a text based source compared to seeing insights in a graph.
- ChatGPT Does not know your specific situation – ChatGPT does not know the nuance of your situation. A great financial advisors will have an understanding of your tax situation, life goals, and financial position. Without a level of background information, it is difficult for a bot to properly advise you.
- ChatGPT Cannot Adjust to Market Feedback – Investment Analysis and strategy is constantly evolving based on economic indicators that come out daily. ChatGPT does not have the ability to adjust to current market and economic decisions.
Conclusion
There are many great use cases for using ChatGPT to help investors. We especially like ChatGPT as a research tool and source of information to improve our financial education.
Investing can be complicated, but the power of ChatGPT makes it easier to understand to make better decisions. Whether they are new or seasoned professionals, the tool can provide some valuable insights to better understand the investment styles of some of the greats.
You will get the most value out of ChatGPT by asking follow-up questions to responses which allows you to dig deeper than a surface level.
As you learn more, it’s important to keep in mind the limitations of the system and keep an eye on emerging technology that is likely to improve ChatGPT’s current capabilities.
