Experts urge caution about using ChatGPT to pick stocks

As the popularity of AI chatbots continues to rise, their application in the stock market is becoming increasingly common. A recent report indicates that approximately 10% of retail investors are now turning to tools like ChatGPT for stock selection advice. A survey conducted by trading platform eToro, involving 11,000 retail investors globally, revealed that 13% of these investors utilize AI tools, such as ChatGPT and Google's Gemini, for making investment choices. Remarkably, around half of the respondents expressed interest in leveraging these technologies for their portfolio management decisions. Unlike algorithmic trading, which relies on automated systems executing multiple trades at lightning speed, many investors are using ChatGPT as a supplementary advisory tool. This approach allows them to pose questions, review the AI’s analyses, and ultimately make their own trading decisions through traditional brokerage services. One notable individual, Jeremy Leung, who previously spent nearly two decades analyzing firms for UBS, has shifted to using ChatGPT for his multi-asset portfolio management. "I no longer have the luxury of a Bloomberg terminal, or those kinds of market-data services which are very, very expensive," Leung shared. He noted that even a basic tool like ChatGPT can replicate many of the processes he once relied on. In an interesting study, the financial products comparison site Finder asked ChatGPT to recommend stocks from high-quality companies based on specific metrics such as debt levels and consistent growth. The resulting portfolio, consisting of 38 stocks, reportedly increased in value by nearly 55% since its inception in March 2023, outperforming the average of the UK's ten leading funds by almost 19 percentage points. However, this impressive performance comes with a significant caveat. According to reports, the S&P 500 index is currently near record highs, having risen 13% this year following a 23% surge the previous year. Such favorable market conditions can make many stock-picking strategies appear successful. While the trend of utilizing AI for trading advice is seen as a means of democratizing investment analysis—previously accessible only to institutional investors with costly data services—experts caution against over-reliance on these AI models. They often lack real-time market data and can produce misleading financial information, highlighting the risks of substituting professional advice with automated tools.