Experts Urge Caution About Using ChatGPT To Pick Stocks

An anonymous reader quotes a report from Ars Technica: With AI chatbots growing in popular usage, it was only a matter of time before large numbers of people began applying them to the stock market. In fact, at least 1 in 10 retail investors now consult ChatGPT or other AI chatbots for stock-picking advice, according to a Reuters report published Thursday. Data from a survey by trading platform eToro of 11,000 retail investors worldwide suggests that 13 percent of individual investors already use AI tools like ChatGPT or Google's Gemini for stock selection, while about half say they would consider using these tools for portfolio decisions.

Unlike algorithmic trading, where computers automatically execute thousands of trades per second, investors are using ChatGPT as an advisory tool in place of human experts. They type questions, read the AI model's analysis, and then manually decide whether to place trades through their brokers. Reuters spoke with Jeremy Leung, who analyzed companies for investment bank UBS for almost two decades. Leung now relies on ChatGPT for his multi-asset portfolio. 'I no longer have the luxury of a Bloomberg terminal, or those kinds of market-data services which are very, very expensive,' Leung told Reuters. 'Even the simple ChatGPT tool can do a lot and replicate a lot of the workflows that I used to do.'

Reuters reports that financial products comparison website Finder asked ChatGPT in March 2023 to select stocks from high-quality businesses based on criteria like debt levels and sustained growth. Since then, the resulting 38-stock portfolio has reportedly grown in value nearly 55 percent. That performance beat the average of the UK's 10 most popular funds by almost 19 percentage points. But there's a huge caveat to that kind of AI success story: US stocks sit near record highs, Reuters notes, with the S&P 500 index up 13 percent this year after surging 23 percent last year. Those are conditions that can make almost any stock-picking strategy look smart.

Reuters frames the AI trading advice trend as a case of new technology tools 'democratizing,' or opening up, investment analysis once reserved for institutional investors with expensive data terminals. But experts warn that AI models can confabulate financial data and lack access to real-time market information, making them risky substitutes for professional advice. 'AI models can be brilliant,' Dan Moczulski, UK managing director at eToro, told Reuters. 'The risk comes when people treat generic models like ChatGPT or Gemini as crystal balls.' He noted that general AI models 'can misquote figures and dates, lean too hard on a pre-established narrative, and overly rely on past price action to attempt to predict the future.'

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