AI Tools Like ChatGPT Help People Choose Stocks

Post by : Monika

Artificial Intelligence (AI) is changing the way people invest in the stock market. One of the most popular AI tools is ChatGPT, a chatbot developed by OpenAI. As ChatGPT approaches its third anniversary, it has become a helpful assistant for many retail investors—ordinary people who invest their own money.

These AI tools are making stock market advice more accessible. In the past, only big banks or professional investors had access to detailed financial information and advice. Now, anyone with an internet connection can ask ChatGPT questions like, “What stocks should I buy?” and get answers based on data and analysis.

The Growth of Robo-Advisory Services

The rise of AI in investing has led to a boom in the robo-advisory market. Robo-advisors are online platforms that use algorithms and AI to provide financial advice and manage investments. According to a report by Research and Markets, the robo-advisory market is expected to grow from $61.75 billion in 2023 to $470.91 billion by 2029—a nearly 600% increase.

This growth shows that more and more people are turning to AI for help with their investments. A survey by eToro found that about half of retail investors are open to using AI tools like ChatGPT or Google’s Gemini to manage their portfolios. Currently, 13% of these investors are already using such tools.

Real-Life Example: Jeremy Leung

Jeremy Leung, a former analyst at UBS, is one example of someone using AI for investing. After losing his job at the Swiss bank, he started using ChatGPT to help manage his investments. “Even the simple ChatGPT tool can do a lot and replicate a lot of the workflows that I used to do,” he said.

However, Leung also points out some limitations. ChatGPT cannot access certain financial data that is behind paywalls, such as detailed reports from financial services like Bloomberg. This means that while ChatGPT can provide useful information, it might miss some important details.

Success Stories and Cautions

Some users have had success using AI to pick stocks. For example, a selection of 38 stocks chosen by ChatGPT, based on criteria like low debt and strong growth, has increased nearly 55% in value. This is almost 19 percentage points more than the average of the UK’s 10 most popular funds.

Despite these successes, experts caution that using AI for investing carries risks. AI tools like ChatGPT are not perfect and can make mistakes. They might misinterpret data, rely too heavily on past performance, or provide outdated information. Therefore, it's important for users to have some financial knowledge and to use AI tools carefully.

The Importance of Providing Clear Instructions

To get the best results from AI tools, users need to provide clear and specific instructions. Leung, for example, creates detailed prompts like, “Assume you're a short analyst; what is the short thesis for this stock?” or “Use only credible sources, such as SEC filings.” The more context and detail provided, the better the AI’s responses will be.

Risks of Over-Reliance on AI

One of the main concerns with using AI for investing is the risk of over-reliance. Some investors might treat AI-generated advice as infallible, which can be dangerous. AI tools do not have the ability to predict future market movements with certainty. They can provide insights based on available data, but they cannot account for unforeseen events or changes in the market.

Additionally, AI tools might not be able to adapt quickly to sudden market changes. For example, during a market downturn, AI might not recognize the signs early enough to advise users to adjust their portfolios.

The Need for Human Oversight

Experts agree that while AI can be a helpful tool, it should not replace human judgment. Financial advisors have experience and knowledge that AI lacks. They can understand complex situations, consider a person’s individual financial goals, and provide personalized advice.

Using AI for investing should be seen as a supplement to, not a replacement for, traditional financial advice. Investors should use AI tools to gather information and ideas but should consult with human advisors before making major investment decisions.

The Future of AI in Investing

Looking ahead, AI is likely to play an even bigger role in investing. As technology improves, AI tools will become more sophisticated and capable of analyzing more complex data. They might be able to provide more accurate predictions and personalized advice.

However, with these advancements come new challenges. Regulators will need to ensure that AI tools are used responsibly and that investors are protected from potential risks. There will also be a need for ongoing education to help investors understand how to use AI tools effectively and safely.

AI tools like ChatGPT are making stock market advice more accessible to everyday investors. They offer a convenient way to get information and ideas for investing. However, it's important to use these tools wisely and not rely on them exclusively.

Investors should combine the insights provided by AI with their own knowledge and, when necessary, seek advice from human financial advisors. By doing so, they can make informed decisions and manage the risks associated with investing.

In the end, AI can be a valuable tool in the world of investing, but it should be used as part of a balanced approach that includes human judgment and oversight.

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