Artificial intelligence has the potential to make people’s lives easier with personalized product recommendations, meal plans and quicker access to relevant information.
Investing is not immune: Some investors are turning to new AI tools for stock picks and advice on how to manage their portfolios.
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Artificial intelligence can make stock picking seem easy. You can use search prompts like “best dividend income stocks” and “best growth stocks” to find investments that match up with your preferences. OpenAI’s ChatGPT large language model, for example, can give you 10 stock recommendations in a few seconds, along with summaries of what each company does. AI can cut down on research and give you quick picks, and more investors are picking up on this emerging trend.
According to a recent Yahoo Finance-Ipsos survey, 20% of American investors have used an AI chatbot within the past year. And ChatGPT’s current version, GPT-4, significantly advances the technology from its predecessor, GPT-3.5. OpenAI began to roll out new voice and image capabilities, as well as additional language support, in September.
The popularity of AI tools is growing among investors, but are these developments beneficial for returns? Does it make sense to use AI for your stock picks instead of investing in a mutual fund or exchange-traded fund and relying on the fund’s managers to make your picks?
The answers to these questions are still unfolding, as the AI industry challenges how people think and expands their perceived capabilities, to the point that some speculate that AI could replace or even outperform fund managers and supplant financial advisors. Others aren’t completely convinced. Here are some of the factors surrounding AI’s future role in investment planning:
— How AI can help with stock picking.
— What to look for in an AI tool.
— Tools available now that use AI to pick stocks.
— Limitations of stock picking with AI.
— Will AI replace fund managers or financial advisors?
— Should you use AI for your stock portfolio?
How AI Can Help With Stock Picking
The stocks you add to your portfolio can heavily impact your finances, cash flow and long-term goals. AI can give you an edge if you are looking for a good place to start and want a few stock recommendations.
AI is good at sharing five to 10 stock picks based on a set of criteria. ChatGPT, for example, is a useful tool for top-of-funnel research because it can suggest stock ideas, but you should follow up with your own research and narrow the field to make your selections.
Alex Koynoff, a financial advisor and owner of ATK Financial Prosperity LLC, explains how artificial intelligence can make researching stocks more manageable: “Individual investors often face the challenge of conducting thorough research and analysis for stocks, which can be time-consuming and costly. Retail investors often lack access to sophisticated systems and data, but AI could potentially level the playing field by assisting with the research.”
Earlier this year, ChatGPT only used financial data up to September 2021 when making stock recommendations. This gap sometimes produced outdated information, including false negatives and false positives. If you asked ChatGPT for the 10 best small bank stocks, for example, the AI tool might have suggested Silicon Valley Bank. SVB famously went out of business in early 2023, but since ChatGPT only used data from September 2021, it still thought SVB was a top regional bank.
As of late September, however, OpenAI said that ChatGPT can scan the internet for up-to-date information and current events to answer queries, and that it will be able to have conversations by “voice” with users.
Plus, ChatGPT isn’t the only game in town when it comes to AI tools for financial advice. Blaine Thiederman, a certified financial planner and founder of Progress Wealth Management, says he uses the Vise AI Advisors tool to get daily updates about companies. He says finding the right AI tool can give you a distinct advantage over other investors.
“AI excels at processing large volumes of financial data rapidly, enabling it to identify patterns and correlations that humans might miss,” says Thiederman. “With Vise AI Advisors, we review every update from every company in the whole market every day and update our models accordingly.”
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What to Look For in an AI Tool
There are other, less tangible advantages to using an AI tool as well. While AI bots aren’t for everyone, they remove the human factors that can often impede long-term profits, Thiederman says.
“AI algorithms are not influenced by human emotions, such as fear or greed, leading to more objective decision-making,” he says.
Up-to-date information and objectivity make for a good start. Here are some other features to look for in an AI tool:
Versatility. Some AI tools let you ask more detailed questions, which can help you find optimal investments for your portfolio.
Trading signals. Some AI tools let you find stocks that recently reached or exceeded key technical indicators. Traders won’t have much luck with ChatGPT, since it does not let you see real-time trading signals. Some AI tools can also make investments for you when stocks reach certain price points or technical lines. So, an AI tool like that can help traders save considerable time.
Data availability. Does your AI stock picker let you see a stock’s volume, moving average and other details? Having more information can help you make smarter investments. Some AI tools have better information on your favorite stocks than others.
Stock scoring. While this feature shouldn’t make or break an AI investing tool, a scoring system can tell you what the AI thinks about the stock. You should familiarize yourself with the methodology used to formulate the score before taking it seriously.
Tools Available Now That Use AI to Pick Stocks
While ChatGPT is a general AI service, other tools specifically cater to stocks. You can choose from several AI options for your stock picks. It’s important to do your due diligence when deciding to make an AI tool part of your investing strategy, and this is just a snapshot of what’s out there:
TrendSpider. This technical analysis-based AI tool comes with a bot, asset insights, back-testing and other features. Back-testing lets you test how your current strategy would have performed in previous market cycles. For instance, you can see how your current strategy would have performed two years ago.
Trade Ideas. This AI-based platform always has up-to-date information on stocks, since it connects to the major stock exchanges. You can use this tool to learn more about a stock before investing in it or let an AI bot perform the trades for you.
Magnifi. This stock brokerage platform has an AI tool that lets you find stocks and funds based on several criteria. You can look for funds that recently increased their holdings in your favorite companies. Magnifi offers more flexibility than ChatGPT while streamlining your research.
These tools can make relevant information more accessible, and some traders also set up bots to further automate the process. Many AI tools also let you try out the trading bot with “test” money before you invest real money.
Limitations of Stock Picking with AI
Artificial intelligence continues to grow and tap into new markets. It presents many advantages for investors, but AI also has its limits. Thiederman mentions how AI may have difficulty interpreting information that requires human intervention.
“AI models may struggle to interpret qualitative or contextual information that affects stock performance, such as news events, geopolitical factors or regulatory changes,” he says. “It’s also important to note that AI models might not perform as expected during unprecedented or extreme market conditions that deviate from historical patterns.”
Thiederman says that you should know what you want from your investments before using AI to pick stocks: “Investors need to define their investment objectives, risk tolerance and time horizon.”
Knowing what you want from a stock narrows your choices. You can focus on assets that move you closer to your financial goals and have a purpose in your portfolio. AI becomes more useful for stock picking once you know the basics, but if you don’t have a firm grasp of your objectives, risk tolerance and time horizon, it is possible to make the wrong investment decisions by listening to AI.
AI tech relays information to you, but you must then make your own decisions. Even if you use an AI trading bot, you have to set the bot’s trading parameters and rules.
“AI can assist in examining annual reports, regulatory filings and financial statements, providing insights based on user prompts and provided data,” Koynoff says. “Investors can then utilize this information to form their own opinions on whether a particular stock is suitable for their portfolio.”
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Will AI Replace Fund Managers or Financial Advisors?
Artificial intelligence is evolving within ChatGPT and other large language models to create new possibilities, if not replace their human counterparts in business.
An AI-powered investment platform called PortfolioPilot announced in August that it is the first registered investment advisor of its type to be regulated by the U.S. Securities and Exchange Commission, or SEC. PortfolioPilot helps investors conduct portfolio overhauls based on personal preferences, optimize fees to lower total costs and discover investment ideas. According to its parent company, Global Predictions, it now manages $6 billion in assets.
“Securing SEC registration for our AI financial advisor marks a huge milestone for the company and instills a new level of user confidence in our platform,” says Alexander Harmsen, CEO of Global Predictions. “We are committed to empowering self-directed investors to make smarter investment decisions by building hedge fund-caliber investment solutions and making them accessible to everyone.”
While artificial intelligence continues to make strides, it won’t be replacing fund managers or financial advisors, Koynoff says. AI and machine learning tools have been around for years, he says, and hedge funds have been using them long before ChatGPT and other tools came into the picture.
“While there has been a lot of buzz recently due to ChatGPT, AI and machine learning are not new to investing and stock picking. Sophisticated institutional investors, such as hedge (fund managers), have been using AI and machine learning to enhance their investment strategies.”
AI is becoming more mainstream, but investors and analysts still need to make decisions based on real-time news. The technology is only as good as the investor using it.
Fund managers can draw from their experience and can interpret the data that AI provides. In fact, even ChatGPT says that “it’s a good idea to consult with a financial advisor or professional for personalized investment advice.”
PortfolioPilot also uses artificial intelligence to make financial advice more accessible. However, investors have to know enough about their risk tolerance and finances to ask the right questions and receive answers that apply to them in a meaningful way.
A financial advisor can use their experience with previous clients and take a deeper look at your financial well-being to help you achieve your long-term goals. Working with a financial advisor can also build a sense of camaraderie that is difficult to replicate with artificial intelligence.
Should You Use AI for Your Stock Portfolio?
Artificial intelligence can make a great addition to any portfolio strategy. You can ask questions and receive stock picks, insights and critical details to help you make the best decisions. AI trims the research process and simplifies stock picking.
Though AI has many benefits, you shouldn’t blindly rely on it. You still have to know what you want from your portfolio, and market knowledge can help you see opportunities and obstacles ahead.
You should research what questions to ask an AI stock picker. Asking better questions will lead you to better answers. It’s best to treat AI stock tools like assistants. They can provide the information you need, but it’s still up to you to make decisions and stay on top of the market.
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Update 10/16/23: This story was previously published at an earlier date and has been updated with new information.
