Study: AI beats people at picking stocks – But there’s a catch
Have you ever heard about Burton Malkiel, author of “A Random Walk Down Wall Street?” He proclaimed that a blindfolded monkey tossing darts at the financial section of a newspaper could select a portfolio that would do just as well as one chosen by experts.
Now, what if that monkey was going up against artificial intelligence? Here’s a twist for your 401K and retirement plans: Chatbots like ChatGPT are better at picking stocks than humans. (Matt, my Morgan Stanley man, if you are reading this, let’s talk on Monday.)
Don’t be mean, be above average
Yes, AI beats humans. According to a new study, researchers asked ChatGPT to pick stocks based on criteria average investors find important — like “grows in value” and “not a total disaster.”
It picked a collection of companies, and they actually gained value. The 10 leading investments, on average, lost value during the same 2023 timeframe. Check this out — another study showed ChatGPT is better at predicting future stock prices than some expensive software planners currently use. Whoa.
Does that mean you should trust your investments (or investments-to-be) to a chatbot? Not exactly.
Ask a fund manager …
And they’d tell you something like this was coming. Investment managers have been using AI, aka “robo-advisors” (yeah, I got a kick out of that) for years to help predict and choose stocks.
Financial planners are quick to say that consumers shouldn’t let chatbots make investment decisions for them — but that’s what they would say, right? Are they just afraid of losing their jobs? The truth is more complicated.
There’s no AI ‘silver bullet’
Asking a chatbot directly for a stock pick is still rolling the dice. It’s like going on Reddit or Google and typing in “best stock ever.” And financial planners have tested this, too. The more parameters you feed ChatGPT — like a portfolio with a certain amount of equity or risk — the more mistakes the chatbot seems to make.
An expert can use chatbots like this to gather tons of info very quickly or get useful summaries to help make decisions. But in the hands of an amateur, complete reliance on AI is less like “The Wolf of Wall Street” and more like … well, the end of “The Wolf of Wall Street,” minus the crimes.
This little bot of mine
Whether you like to play the stock market, pick out safe mutual funds, or just think, “Wow, a retirement fund sure would be nice someday,” AI is definitely gonna be involved. Consumer-friendly chatbots can put a ton of information into the hands of everyday investors that wasn’t available before.
They’re like the tools fund managers have been using for years, but now you get to peak behind the scenes. You have lots of (free) options to ask, like ChatGPT, Bing, Bard or your AI of choice.
Remember, these chatbots are 100% wrong at times. That said, here’s what you can do:
- Get a direct answer to a simple question about a stock.
- Compare different potential portfolios to find a good mix.
- Find investments similar to a stock that you already bought.
- Double-check financial advice by asking ChatGPT for several similar answers.
- Set up a single goal for returns on an investment and ask for ideas.
- Get a summary of the latest news and significant market changes.
✅ Check out my warning on fake investment apps before you jump in. Be careful out there, folks! Where there is money, there will be scammers.
Tags: AI (artificial intelligence), chatbots, investments, Stocks
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