ChatGPT and stock picking: Hedge fund manager shares AI trading strategy

Watch: ChatGPT and stock picking: Hedge fund manager shares AI trading strategy | The Crypto Mile

Trading and investing techniques are being super-charged by artificial intelligence (AI) apps such as ChatGPT, now a hedge fund manger shares his AI-trading strategies with Yahoo Finance UK.

On this week's episode of Yahoo Finance's The Crypto Mile, hedge fund manager Alpesh Patel discussed the use of AI for trading and investment strategies.

Patel emphasised the transformative power of AI in investment decisions and spoke about the ability of ChatGPT to analyse more data than any individual could do alone. He discussed how investors can outsource extensive reading and comprehension to ChatGPT, resulting in more informed decision-making.

"ChatGPT can look at much more financial information than you could ever take in on on your own," Patel said.

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He added that financial data can be added into ChatGPT via plug ins which will allow the app to read and comprehend spreadsheets of financial data and stock charts.

The importance of the right prompt

Patel highlighted the need to ask the right questions, or prompts, to make the most of AI-apps. He gave examples of prompts and plugins to aid successful investment decisions.

The hedge fund manager gave a specific example of a prompt that he uses. "I ask ChatGPT to imagine it is Nobel prize winning economist Eugene Fama and to pick the most undervalued stocks with the best growth potential, that are most likely to succeed over the next 12 months," he said.

He also mentioned the use of plugins for inputting data and ones to improve the prompts that are given to ChatGPT. "I use an app called Prompt Perfect to refine prompts, " he added.

Creating prompts for ChatGPT often involves assigning a role to the AI, Patel added. For example, an analyst could ask ChatGPT to assume the role of a top analyst at Goldman Sachs and summarise key points from a report. After the financial report is added into the application, Patel gives a specific prompt to use.

"Ask ChatGPT to imagine it is the top analyst at Goldman Sachs and has a PhD in economics, and is reading the PDF report that has been inputted. Then ask it to output a summary for the report in 500 words with the most important salient points of the information contained within it. Then tell it to make investment and stock tips as though it were a hedge fund manager making decisions for the company," he said.

Read more: Could AI trading lead to market 'flash crashes'? — The Crypto Mile

Patel advised using a conversational process with ChatGPT, refining the questions and information that you give it. "Like most things in life it is about asking the right question to the right person, and now we have the right person in the from of AI. However, we have to give it the right information and ask it the right question, you need to get the prompt correct," Patel added.

Bypassing ChatGPT's 2021 information cutoff

The standard version of ChatGPT has a knowledge cutoff from September 2021. However, you can overcome this limitation by using the new browsing mode with the GPT-4 model. This means you can access the internet within ChatGPT. Patel also revealed that using GPT4-plus allows users to plug in their data. This capability enables investors to use ChatGPT to analyse the latest financial data on for example Dow 30 (^DJI) stock index. Thereby working around the information cutoff.

ChatGPT as a co-pilot, not a crystal ball

Patel said that ChatGPT is best suited for medium to long-term investment, as opposed to day-trading. He cautioned that artificial intelligence isn't a crystal ball and can't guarantee future stock performance. Patel concluded that while ChatGPT is a valuable tool, it won't replace humans in fund management. Instead, he envisioned AI as a co-pilot that assists in making informed investment decisions.

Watch: Could AI trading lead to 'flash crashes' in the market?

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