How ChatGPT can potentially pick stocks better than your fund manager

A group of stocks handpicked by ChatGPT, an AI-powered chatbot, has significantly outperformed several prominent investment funds in the United Kingdom. In an experiment conducted by financial comparison site finder.com between March 6 and April 28, a simulated portfolio consisting of 38 stocks yielded a 4.9% gain. In contrast, 10 well-known investment funds experienced an average loss of 0.8%.

Jon Ostler, CEO of Finder, stated that it wouldn’t be long before a large number of individuals seek to utilize ChatGPT for financial benefit, considering its impressive performance. During the same eight-week period, the S&P 500 index, which tracks the top 500 US companies, increased by 3%. Meanwhile, Europe’s equivalent, the Stoxx Europe 600 index, showed a modest growth of 0.5%.

Typically, an investment fund pools funds from multiple investors and is managed by a fund manager who makes investment decisions on their behalf. In this experiment, Finder’s analysts used the 10 most popular UK funds on the Interactive Investor trading platform as a benchmark to evaluate the performance of the portfolio generated by ChatGPT. Notable funds managed by HSBC and Fidelity were included in the selection.

The analysts tasked ChatGPT with selecting stocks based on commonly used criteria such as low debt levels and a history of growth. Among the chosen companies were Microsoft (MSFT), Netflix (NFLX), and Walmart (WMT).

While prominent investment funds have been utilizing AI for years to aid their investment decisions, ChatGPT has now placed this technology in the hands of the general public, potentially guiding the choices of individual investors.

According to a recent survey conducted by Finder, 8% of 2,000 UK adults have already sought financial advice from ChatGPT, while 19% expressed their willingness to consider doing so. However, a larger percentage of 35% stated that they would not contemplate using the chatbot to assist them in their financial decision-making.

Nonetheless, Jon Ostler, CEO of Finder, suggested that fund managers might be feeling a sense of unease as the emergence of ChatGPT progresses.

A study published in April by researchers at the University of Florida revealed that ChatGPT demonstrated greater accuracy in predicting stock price movements for specific companies compared to some basic analysis models.

Since OpenAI granted access to ChatGPT in December, the chatbot has astonished users with its ability to provide comprehensive and sophisticated responses to inquiries. However, concerns have been raised regarding potential misuse of the technology, such as providing misleading information, enabling cheating on exams, or replacing human workers.

Ostler emphasized that the “safe and recommended” approach for individual investors was to conduct their own research or consult with qualified financial advisors. He cautioned that it was premature for investors to fully entrust AI with their financial matters.

Nevertheless, Ostler believes that the democratization of AI has the potential to disrupt and revolutionize the financial industry, bringing about significant changes.Written by Nick Staunton