Is AI beating investors?

How to deal with AI and investing

Hi friend,

Today will be a short one. This week I am attending Copenhell, a heavy music festival I have been visiting with friends for over a decade so by now it is a tradition.

I stumbled on a known guitarist friend of mine who was having a beer with one of his videographer friends and we somehow got into comparing real estate investing with stock investing and agreed that there are actual interesting similarities on the personal level and why I don’t invest in real estate at the moment.

I’ll write a piece about that soon, today I find it more important to share some notes on the news that researchers from the University of Chicago Booth School of Business found that Large Language Models (LLMs) can outperform human analysts when it comes to predicting future earnings.

LLMs are what we are calling Artificial Intelligence, like ChatGPT for example.

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What the researchers found is the LLMs are 7% more accurate than the average professional human analysts.

Note that the AI scored just a 60.4% prediction accuracy.

This is why it is not so much your research and prediction skills that are important but your execution skills. No matter whether you are an AI or a human, you need to figure out how to turn these odds in your favor so that you win regardless of whether your predictions are correct or not. This means focusing on not losing money first and foremost.

In the research, nothing was mentioned about the execution skills of the LLM, but I think this should not be the focus.

AI’s strength is not being affected by emotions and bias as much as we humans are.

Our strength is being able to connect the dots of specific individual knowledge in ways the AI could not imagine.

How about combining our strengths instead of worrying about what AI would do on the market?

I don’t see a future where AI trading on the markets is an issue, we already have bots that outperform humans in certain trading contexts.

I do see a future where as investors and traders we use AI assistants to make our research, monitoring, and maybe even execution work more efficient and hopefully also more fun.

A current student of mine Alex was just asking how to deal with not having enough time to research and monitor his positions and how to optimize. Learning how to use our new AI friends will be key. In history the humans with the best tools have always won, so I recommend embracing AI.

How are you using the current AI solutions to aid your investing?

Have fun and make profits,

Chris

Thank you for reading! :)

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DISCLAIMER: None of this is financial advice. This letter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and do your own research.