Investing has evolved right along with technology. People once got their investment information from newspapers and magazines, until the internet and social media brought investing into the digital age.
Now, artificial intelligence (AI) is starting to generate buzz about a potential new investing era. According to research done by The Motley Fool, 47% of U.S. investors have consulted ChatGPT for stock recommendations.
AI's capabilities make it a fascinating tool. But like any tool, it can do more harm than good if misused. Let's look at some dos and a don't when it comes to using AI language models like ChatGPT for investing.
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Do use ChatGPT to simplify complex ideas
Knowing the businesses you invest in is a crucial part of owning stocks. But some businesses are complex and challenging to understand. For example, consider software stock Datadog (DDOG -1.43%). You can go to Datadog's website and learn that the company is a monitoring and security platform for cloud applications, and you might not know what that means if you're not well-versed in technology.
I went to ChatGPT and asked it to tell me what Datadog's business does in simplified terms, and this is what it replied:
Datadog is a company that helps businesses monitor and analyze their digital infrastructure and applications. In simple terms, they provide a platform that collects and organizes data from various sources such as servers, databases, cloud services, and applications.
Imagine you have a house with many rooms, and each room has different things going on. Datadog acts like a watchful eye that keeps track of everything happening in your house. It looks at things like how hot or cold each room is, whether there's any leaky pipes, and if any appliances are malfunctioning.
From a few seconds of reading, I learned about the company in non-technical terms and saved myself the time and energy of trying to wrap my mind around an overload of information from the internet.
Don't use ChatGPT to make subjective decisions
It's a slippery slope from asking ChatGPT for information or an explanation to relying on it for subjective answers. It's fine asking ChatGPT to name a dividend stock that yields more than 5% (although you should be aware that ChatGPT doesn't always draw its answers from the most up-to-date sources), but things can get dicey when that turns into: Should I buy XYZ stock?
Whether you should buy a stock depends on individual factors that ChatGPT can't relate to. For example: What are your investment goals? Your risk tolerance? How diversified is your portfolio? Do you want to buy a stock for a short-term trade or hold it over time? Will AI use information based on generally accepted accounting principles (GAAP) or adjusted figures? How do you know it's accurate?
Data is also interpreted in different ways. Suppose that a dividend stock is a terrific company, but some temporary issue or event inflated the dividend payout ratio. Will ChatGPT recognize such a variable and account for it in its answer? Language models are as good as the training and data they receive. Investing is rarely black-and-white, so don't base your decisions on a technology that could have trouble working within the gray areas.
Do make investing unique to you
Investing should be an individual journey, which gets harder when relying on ChatGPT. There is a good chance that users across the web will use the same prompts, such as: "Which stocks should I buy," or "Is XYZ a good stock?"
There's also a good chance that ChatGPT will give similar answers for similar prompts, considering the model is the same for everyone. Nobody has an individual version of ChatGPT personally running prompts for them. Investing can be a case where following the herd can have harmful consequences. What if everyone is blindly buying the stocks ChatGPT lists for them? It will be much harder to generate investment returns if you're not willing to go against the grain every now and then.
AI has the potential to change investing, and some might argue it already has. ChatGPT can be a fantastic tool to save you time and effort, but cutting too many corners could easily backfire. Use the technology responsibly, and your portfolio will thank you.
