Founder and CEO of Haroun Education Ventures, Inc.
Using computers in investing is nothing new. Take Renaissance Technologies, which has utilized advanced (and heavily guarded) algorithms to identify patterns in financial markets since it was founded by a former NSA employee in the early 1980s. Since 1988, their Medallion Fund has achieved an impressive average annual return of almost 40% after fees, making it one of the most successful hedge funds in history.
Now the rise of GenAI is ushering in a new era of upheaval in the investing world. Publicly available tools promise to significantly disrupt financial services within the next few years. Retail investors can already leverage some of their features, and over the long term, AI will make sophisticated investing techniques available to almost everyone.
AI Tools For Retail Investors
For private investors, tools like Claude.ai can be useful for performing equity research. For example, we can upload multiple annual reports and ask it to put together cash flow statements and balance sheets for any date range. Other tools like ChatGPT, CoPilot and Google Gemini can also analyze a company’s financials, market share and risks.
These tools aren’t perfect, but they’re getting steadily better. At this point, they’re more useful in looking at the past than the future—analyzing what has already happened versus predicting what will happen. As always, it’s important to be aware of their tendency to hallucinate or give confidently wrong answers. Make sure to ask for sources with every prompt and verify them, since AI tools can make these up, too. It’s also a good idea to try multiple tools at the same time and compare their results.
Going forward, AI tools will help forecast financial statements by spotting patterns in past data. By looking at transcripts of earnings calls and historical financials, they’ll be able to help predict future expenses. AI can also use behavioral finance techniques to analyze how conservative or aggressive management decisions have been. Again, these models won’t be infallible, but they may soon be better at picking stocks than traditional equity analysts.
The Future Of Financial Analysis
Many financial firms are still in the testing phase of implementing AI. They’re understandably wary of its quirks and limitations and concerned about privacy and security issues. The last thing a hedge fund or investment bank wants is for their investing strategies or confidential client information to leak onto the internet. That’s why some companies are licensing tools like CoPilot to run behind their own firewalls, which lets them leverage AI capabilities while ensuring sensitive information stays where it should.
In the near future, at least, AI will probably replace more jobs than it creates, especially in larger companies. Repetitive, time-consuming tasks like data entry and compiling and interpreting reports will be the first to become automated. Trader and analyst roles at hedge funds, mutual funds and investment banks are also at risk, although in some cases these roles may be augmented by AI instead of eliminated.
At the same time, AI won’t be able to replace roles that depend heavily on human interaction and trust, like portfolio management or sales. And of course, the finance sector will see new jobs created, from data scientists and technology consultants to AI strategists and AI risk management specialists.
The long-term prospects for AI in retail investment are excellent. The technology will have a widespread democratizing effect, giving individual investors access to sophisticated techniques that were once only available to large institutions. At the moment, however, we need to make sure we use these powerful tools wisely.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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