The more things change, the more they stay the same.
One of the best places to see this in action has been the stock markets.
Since time immemorial, there have always been market participants who have tried and mostly failed to game the system and develop their own edge.
Time has proved over and over: there is truly only “one” way to get one over everyone else in the markets.
(More on that in a moment…)
And as generative AI has been seemingly taking the financial world by storm lately, I wasn’t surprised when I saw this recent CNN article pop up in my social media feed.
Source – CNN Business
Everyone Searches for an Edge…
From the article:
A basket of stocks selected by ChatGPT, a chatbot powered by artificial intelligence (AI), has far outperformed some of the most popular investment funds in the United Kingdom.
Between March 6 and April 28, a dummy portfolio of 38 stocks gained 4.9% while ten leading investment funds clocked an average loss of 0.8%, according to an experiment conducted by financial comparison site finder.com.
It wouldn’t “be long until large numbers of consumers try to use [ChatGPT] for financial gain,” Jon Ostler, Finder’s CEO, said in a statement earlier this week.
Finder’s analysts took the 10 most popular UK funds on Interactive Investor, a trading platform, as a benchmark for assessing the performance of the ChatGPT-generated fund. Funds managed by HSBC and Fidelity were among those selected.
They put together the “AI fund” by using some commonly used criteria (such as debt levels and record of growth).
In other words, the analysts fed the algorithm relevant market and company reports and used its incredible ability to review and interpret written text very quickly.
This is an interesting development. I’m sure you’ll hear a lot more about AI replacing private equity fund managers soon.
And it’s not simply a one-off experiment.
This “AI Revolution” in Wealth Management Is a Perfect Setup
A survey of 2,000 UK adults conducted by Finder last week showed that 8% had already used ChatGPT for financial advice, while 19% said they would consider doing so.
This is gaining serious momentum.
However, as an avid student of the 200-year-long real estate cycle history in the U.S., I must say one thing…
It’s happening right when the second – and more speculative – half of the cycle is poised to go into overdrive.
You can’t make it up.
I mentioned above the fact there is truly only “one” way to get one over everyone else in the markets.
They have a name; they are called “insiders.”
These are the select few who know everything that’s going on in all publicly listed companies. And unless a chatbot like ChatGPT grows legs and can walk into these board rooms of listed stocks, it will never know the truth.
Garbage In = Garbage Out
Here’s the setup, however.
Start releasing news to the media about how great the company is, how its growth prospects are out of this world, and even ask an obliging accountancy firm to produce a fabulous-looking audit for your company.
This is what ChatGPT will be reading. And if the news conforms to its prior criteria for stock selection, it will most likely provide a “buy” recommendation. At least, that’s what seems to have happened during this Finder experiment.
The problem is, this is how insiders have manipulated the market since markets began.
And now you’re telling me almost 20% of UK adults may strongly consider using ChatGPT for financial advice.
The setup is just delicious!
Here’s a historical example of how it works…
Insiders Manipulate the Markets
When insiders want to sell out of a given stock, they release good news. When they want in, they release bad news.
Below is a great example.
I found four headlines from 2021 detailing reports concerning iron ore and resources in general from the Australian Financial Review.
I overlaid those on a chart of Fortescue Metals, one of Australia’s biggest iron ore exporters.
The red arrows show you the dates of the articles.
Now imagine ChatGPT reading those headlines!
This is how insiders manipulate markets. Believe me, they will manipulate AI as well.
There is only one thing in financial markets that you can trust will not lie to you.
And that’s a stock chart.
My readers know what to do when they read something that’s positive or negative about a stock they own.
The question now is: do you?
Regards,
Phil Anderson
Editor, Cycles Trading with Phil Anderson
P.S. On Wednesday, July 26 I’m holding a special event called The Eleventh Hour – Last Chance.
As I mentioned above, we’re in the speculative, second half of the real estate cycle… a time which I call “The Eleventh Hour.”
This is a time that can make or break your retirement.
During this briefing, I’ll go over what to expect during The Eleventh Hour…
I’ll talk about how you can learn to “see” the reliable cycles and patterns the market has followed for hundreds of years… and where you should put your money right now for the greatest gains.
You can automatically reserve your seat right here.
Like what you’re reading? Send your thoughts to [email protected].