ChatGPT and its Impact on Online Investing & Trading

In this article we’ll take a look at the possible uses and potential problems of using an AI chatbot like ChatGPT for investors.

Instagram and TikTok are littered with creators showing you how to prompt various artificial intelligence tools to help hack your life. Whether it is using AI to help draft a cover letter to apply for a job, fix blurry photos, or write sections of code, there’s seemingly “AI for everything” today. At the forefront of the frenzy is ChatGPT, an artificial intelligence chatbot released by a company called Open AI. And as a chatbot, it can respond to a wide variety of questions in conversational language, including financial and investing-related inquiries.

So many people have been using ChatGPT to help with personal productivity or to help with coming up with ideas that it set a record for being the fastest growing consumer application in history (100 million active users within just two months). However, some financial services companies have restricted or outright banned its use for employees including CitiGroup, Bank of America, Deutsche Bank, Goldman Sachs, Wells Fargo, and others. Corporate concerns may centre on data privacy and security, but while some companies allow it, there is almost universal caution against relying on it for investment advice.

How do you use ChatGPT?

One of the reasons that ChatGPT has been so captivating is that it feels like you can talk to it like you would talk to a human. I used it to help me come up with some cooking recipes that might be a good compromise for myself and my partner. I wanted something with lots of protein, and she wanted something that had no dairy. We also wanted something that we could make in a batch that we could eat over a few days to free up some time. By chatting with ChatGPT it was able to provide a number of ideas, and once we found a potential candidate, I asked it to give me the recipe for 8 servings. Then I asked it to create a shopping list based on that recipe in an order that would be most aligned to the layout of a grocery store. It was also able to provide the nutritional information, such as calories per serving, and even the macronutrient breakdown. It was a phenomenal experience. Until I made the food. While it hit all the points we had asked for, the dish was just uninspiring from a taste perspective. With the help of a foodie friend, we were eventually able to fine tune the recipe to make it a bit more palatable to eat.

And in these early days of ChatGPT, I think this is a good analogy about what investors might get out of it. You can get a recipe for investing, but it might not hit the mark. And while a few bad meals are an acceptable trade-off for experimenting with cooking, the stakes (no pun intended) are significantly higher with the investment of your hard-earned money.

ChatGPT's strengths

One of ChatGPT’s greatest strengths is that it is easy to use. You just ask questions like you are speaking to a human and chat back and forth to refine and develop the information you are looking for. People have been using ChatGPT like a super-human personal assistant. It can help you create work-out routines, diet plans, write snippets of code, polish up your resume, create cover letters and job descriptions, and more. It feels like the promise of every sci-fi movie is coming true because it all feels very seamless. But when it comes to fact-checking those responses, we start to see the limitations of the output. Especially as it relates to investment or trading advice.

Limitations of ChatGPT for investing and trading

ChatGPT has a number of limitations. The first being that it was trained on data only up until 2021. For example, you might have heard of FTX, the cryptocurrency exchange and hedge fund founded by Sam Bankman-Fried that spectacularly went bankrupt in 2022. I asked ChatGPT if I could invest with FTX and it gave me instructions on how to apply to open an account. It failed to recognize that FTX no longer operates.

But beyond limited knowledge of recent events, the underlying technology used in ChatGPT has also famously provided incorrect financial information. In a demonstration of Microsoft’s new integration of its web browser Bing with what was billed as a more advanced version of ChatGPT, it was asked to parse information from a public company’s financial statements and it provided erroneous analysis.

As Richard Lawler, Senior News Editor at The Verge described it, “sometimes AI chatbot responses are clear, detailed, and wrong.”

How ChatGPT's limitations impact investors

Since ChatGPT's answers are created based on the information it was trained on, that means it could include not only good information that exists on the internet, but also some bad information as well. But beyond that, it may not be able to tailor any advice to your individual situation. In fact, if you try to ask it for specific investment advice, recently it has tended to provide more generalized answers with disclaimers that it is not authorized to be used to provide investment advice. 

Below is an example of how OpenAI’s ChatGPT service responds to a request for investment advice in March 2023. 

User: Can you tell me stocks to buy for my RRSP?

ChatGPT AI:As an AI language model, I cannot provide financial or investment advice, nor can I predict the performance of specific stocks.

However, here are some general tips that might help you make informed decisions about investing in stocks for your RRSP:

1. Diversification: It’s important to diversify your portfolio by investing in stocks across different industries and sectors. This helps to reduce the risk of losing money if a particular sector or industry experiences a downturn

2. Do your research: Before investing in any stock, it’s essential to do your research and analyze the company’s financial health, management, and competitive position in the market.

3. Long-term approach: Investing in the stock market for your RRSP should be viewed as a long-term strategy. Trying to time the market or make quick gains can be risky and difficult to achieve consistently.

4. Seek professional advice: If you’re unsure about which stocks to invest in or need help creating a diversified portfolio, consider seeking the advice of a professional financial advisor who can guide you through the process.

Ultimately, the decision to invest in a particular stock or portfolio should be based on your personal financial goals, risk tolerance, and investment horizon.

Alternatives to relying on ChatGPT for investment advice

It might be better to think of ChatGPT as a potential learning assistant for your investing. That assistance could take a number of forms. You could ask it foundational questions relevant to investing, such as “what is a stock?”, or “what does value investing mean?”. As you go further and further down these rabbit holes, you can identify topics of interest or points for clarification that you may want to fact-check. It’s imperative to find alternative sources of credible information.

Conclusion

ChatGPT is being used by many people for a variety of things, including investing.While it can be a fantastic tool to help with productivity-related tasks, caution is warranted when it comes to the accuracy of facts. And that has real implications for how ChatGPT or other AI chatbots can be used for investing and investment analysis.

While there is potential for future improvements to ChatGPT and other AI systems for financial advice, we are not there yet. In the meantime, taking advantage of established, credible sources of information is still the recommended way to go for investors today. And there are lots of those resources available. You can spend hours in the BMO Investment Learning Centre alone, with educational articles for beginner and intermediate investors, regular webinars for advanced traders with investment professionals, and even the video-based courses on learning how to invest.