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Wednesday, November 1, 2023

Can ChatGPT replace a financial adviser?

A recent study ↗ found that a majority of UK investors would be comfortable with taking investment advice from an artificial intelligence bot – so City A.M. decided to quiz ChatGPT on what moves we should be making.

A common catchphrase among traders is “buying the dip” the strategy centres around buying a stock after it has declined in value in the hope that a profit can be made if the price moves higher again.

Short-term traders may look for small dips and bounces, while other investors may look for deep troughs to buy and then hold on for years in the hope of profiting off larger upside moves. But what does ChatGPT ↗ think of this famously risky strategy?

The bot first made it clear that all investments involve risk, and that there are no guarantees of profits.

Nonetheless, the Microsoft-owned bot encouraged me to focus on the long-term, warning me that timing the market can be “emotionally challenging” and often leads to poor investment decisions. It cautioned that I should avoid putting all my eggs in one basket, “even if the price seems attractive.”

When asked what the best strategies were, the bot told me to keep things diverse and invest long term. ChatGPT, it appears, is a rather cautious and sensible financial adviser. 

Should I invest in the UK property market?

But what about more specific questions? What kind of things should I invest in? Could the UK property market ↗ be a good long-term investment for me?

It informed me that the UK was an “attractive destination” for property investment with a consistent demand for rental properties. It also noted that real estate could be a good hedge against inflation as property values and rental income tend to rise with inflation. 

A pretty sound investment then, according to ChatGPT, though the closure of several UK property funds over the past month paints a slightly less rosy picture of the market. 

For Riz Malik, a director at mortgage broker R3 Mortgages, “not even an exorcism” could expel the “pernicious spirits” that currently possess the UK property market. In his view, it was done for.  

“Another rate hold coupled with a stamp duty incentive in the Autumn Statement may result in a dead cat bounce. But with more ghoulish economic data ahead, people will continue to sit on their hands,” he said. 

Maybe the bot could be a little off on this one?

Should I invest in AI stocks?

What about investing in its own technology? Is artificial intelligence what we should bet on? Could AI make me rich?

ChatGPT informed me that AI-related stocks and investment could be volatile and that investment in emerging technologies requires a long-term perspective. 

“While AI has the potential to revolutionise various industries, the full impact might take years or even decades to materialise. Patient, long-term investors are often better positioned to ride out market fluctuations,” it said.

But once again ChatGPT decided it would be best to avoid giving me any direct advice, telling me to seek advice from a financial professional. 

So what were the experts saying?

UBS ↗ expects global AI demand to grow to $300 billion in 2027 from just $28 billion last year, adding that this may end up being a conservative forecast.

It warned, however, that rich valuations may limit any near-term upside. As a result, it encouraged investors to maintain exposure but balance their optimism against other portfolio considerations.

“AI is likely to prove a transformative technology in the long term, but predicting its short-term impact on share prices is by nature speculative and subject to swings in sentiment. So we retain a selective approach toward the tech sector,” UBS said.

Should I invest in Chinese firms?

ChatGPT warned me that investing in China comes with “unique risks and challenges” that I should “carefully consider.” It encouraged me to consider the volatility of financial markets, the fluctuations in the Chinese yuan and the changing and complex regulatory backdrop in the nation. 

The bot once again urged me to spread my risk and diversify my investments and to keep thinking long-term.

Measured advice. But how did this compare to the view of the experts?

Analysts at UBS ↗ acknowledged that negative headlines and market volatility have plagued China this year, leading many international investors to head for the exit, but they still felt that recent supportive policy and nascent improvements in the economy show that China was heading in the right direction.

“We need to be realistic and practical, but we anticipate sustainable growth will once again be established,” the Swiss investment bank said, encouraging a multi-asset approach that would allow investors to stay through the “ups and downs of an economic cycle” with “much lower volatility.”

For analysts at JPMorgan ↗ the “right way” to invest in China was to focus on areas where there is policy support, such as hard technology and the energy transition. It also encouraged a long-term approach, noting that short-term high volatility was normal in Chinese markets. 

“Instead of the factory of the world, we should think of China as a country of global consumers. It represents a unique opportunity for diversification.”

Kaylie Pferten
Kaylie Pferten
A pilot of submersible crafts in a former life, now married to my husband David and writing about investment advice.

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