Beating the market has long been the ultimate goal for investors who pursue active investing. As artificial intelligence (AI) continues to make significant strides across various industries, it’s now making its mark in financial analysis and stock picking. This begs the question: Can AI truly help investors outperform the market? The following article will discuss the different tools, the possibility of beating the market, and the risks to be noted.
Generative AI
The application of AI in finance comes in various forms, from generative AI (Gen AI) models to specialised stock-picking platforms. Generative AI models like ChatGPT by OpenAI, Gemini by Google and Copilot by Microsoft have garnered tremendous attention for their ability to process and generate human-like text. ChatGPT reached 1 million users in just five days, compared to Instagram’s two months. In the same two-month span, ChatGPT soared to 100 million users. Although Gen AI models like ChatGPT show promise, their application in stock picking reveals some significant limitations.
When the models were asked to provide ‘top 10 stocks ideas with strongest fundamentals and largest margin of safety’, these models responded differently. ChatGPT offered a list with detailed information, Copilot provided a similar list but with less detail, while Gemini refrained from giving recommendations, instead suggesting ways to develop investment knowledge. When asked for specific financial metrics like CAGR growth or intrinsic value, AI hallucinations come into play, and a fact check on the numbers is often needed.
This variance in responses highlights a key challenge with generative AI: these models are trained on historical data, often lack access to real-time market information, adhere to platform guidelines that limit certain disclosures, and are prone to generating hallucinations. They also may not provide current or actionable investment advice, making them less reliable for making specific investment decisions.
Specialised AI
