Hi there! I’m excited to share this article with you – it’s one of my longest and most detailed articles yet and goes deep into the field of AI and investing. Hope you enjoy reading it. You can subscribe below if you haven’t already:
In 2016, neuroscientist David Eagleman presented a fascinating idea in a Ted Talk: We could use technology to substitute missing senses in people. He said the brain doesn’t care where it gets its data from as long as it gets some data to work with. A bat is practically blind but can “see” the world through its hearing. A snake “sees” the world through its temperature. David took this idea one step further by creating a vest that would pick up sound in the room and vibrate according to the sound. Someone with no hearing ability could wear this vest, and even without hearing a single sound, they would be able to associate spoken words with vibrations in the vest and learn to “hear” through their body. David even demonstrated this with someone who had been deaf since childhood but learned to hear through the vest in just four days! He went on to start a company that now develops technology to help people hear.
But there was another idea in his talk that went unexplored – David claimed that humans could also develop new senses which have never existed. The example he gave was a guy getting signals through his vest and pressing a green or red button based on the feedback the vest gave him. What the subject didn’t know was that he was getting real-time stock market data as input, and he was making buy or sell decisions for which he was getting feedback. It would have been fascinating to see whether he developed the ability to “see patterns” in the stock market! Sadly, I couldn’t find any additional information about the experiment.
But the idea of using Artificial Intelligence and technology to beat the stock market has been around for a long time. After all, the entire basis of AI is to give computers access to data and help them build their own model – a very similar idea to David Eagleman’s project. Sometimes, it looked like things worked very well, but the problem was that we had no clue why the computer picked the stocks that it chose, whether it was “right” or whether it was a guesswork-based system.
All that has changed now. ChatGPT made waves earlier this year with its ability to answer any question you could ask it – but it’s now unlocked a possibility that we never had before. It can create investing strategies and also explain its decisions. The obvious thing to do would be to see if ChatGPT could beat the market and teach us how it’s doing so – and people have already started doing this.
In this deep-dive, we’ll see:
How ChatGPT is putting active fund managers to shame.
The earlier attempts at AI-based investing and how this time is different.
The effects that AI could have on the market in the long term.
How technology disrupted the market last time when High-Frequency Trading made its entry, and what’s likely to happen next with AI investing.
And most important of all – How is all of this likely to affect your investments, and how can you make money with this information? Let’s get started.
The smartest AI ever
ChatGPT is probably the biggest thing that’s happened to the knowledge search space since Google. It took Instagram 2.5 months to hit 100 million users, but ChatGPT reached that number in just five days! Now, its user base has grown to over 100 million. It’s not just an impressive statistic – it has massive implications for the effect ChatGPT can have on the market, and we’ll come back to that later.
Just to get us all on the same page: ChatGPT is a computer program that lets you ask it almost any question and then spits back an answer using Artificial Intelligence. It’s like your own robotic helper (which is definitely not sentient) who reads through an entire database of information, weeds out the unnecessary stuff, and summarizes it into an answer that saves you time – within a matter of seconds.
We’ve had Chatbots before, but ChatGPT was so effective and eerily good that it triggered alarms among all tech giants to compete by introducing their own projects. Google hastily launched and botched up the demo of “Bard”, its own competitor while Microsoft thought it was smarter to just buy into the company that made ChatGPT. Elon Musk and many others warned that unchecked AI would lead to a Terminator scenario – and YouTubers, including me, made videos on how you could make the most of ChatGPT.
But that was just the beginning. On March 14th, OpenAI released ChatGPT-4 and they said that the new one was so powerful compared to the old one, that it was like comparing the size of the sun to the Earth. In this context, it made ChatGPT-4 a superintelligent computer the likes of which we’ve never seen before.
These were not empty claims either: ChatGPT went on to successfully pass exams that take humans years to prepare for – like acing the SAT, AP exams, Sommelier (wine expert) tests, 4 medical exams, and even the State Bar – on the first try! But you know where the best minds of the country are eventually funneled into, be it Harvard or Stanford or Yale – they all end up at Wall Street. And why should ChatGPT be any exception? Introducing:
ChatGPT investing
Asking ChatGPT to summarize books and give you “how-to” guides is like asking Einstein to play the violin. It’s amusing and relatable, but there’s so much more it can do – and the investing community was quick to catch on. Analysts at Finder.com created a dummy portfolio of 38 stocks with ChatGPT’s help. According to CNN, the portfolio gained 4.9% while its benchmark clocked an average loss of 0.8%!
Now, this isn’t a magic pill – ChatGPT won’t give you the solution to make up your losses after listening to basement-dwelling degens on WallStreetBets who were YOLOing their savings to enter the hall of fame. The dummy fund was put together with some strict criteria to create a portfolio of stocks from high-quality businesses that would compete against the leading funds in its category. The criteria included:
Low levels of debt
Sustained growth
Assets that generate a competitive advantage
The benchmark was set as the 10 most popular funds in the UK. 9 weeks later, the Finder.com fund is still going strong – outperforming the overall market by 5%. The fund has created a sensation, and now people want to create their own portfolios with ChatGPT to make more money. With ChatGPT being software that’s technically accessible to every person in the world, this is something that’s really possible! And this is where the ChatGPT fund comes in.