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In my view, you should never ask ChatGPT for legal, medical, or investment advice – and that includes which shares to buy. There might be other things, but those three stand out to me.
The reason isn’t that I think it’s no good – I’m a big fan. It’s that I think in the vast majority of cases, investors can do a better job without it.
Plato’s Republic
In Books II, III, and X, of the Republic, Plato discusses the role of poets in society. In Ancient Greece, these were essentially actors – people who imitated others. Essentially, Plato’s view was that poets had limited use in society. While they might be able to imitate good shipbuilders, they never become good shipbuilders.
Being a good shipbuilder is about more than producing good ships. It’s about understanding why you’re doing what you’re doing and knowing what to do when things go wrong.
Plato’s idea was that this isn’t something you get just by imitating people who are good at a particular job. And the wisdom of 375 BC shows up again in ChatGPT and investing.
Being a good investor
Being a good investor isn’t just about buying stocks. It’s about buying good ones and being able to hold on to them when things look like they’re going wrong in the underlying business.
Every business goes through difficulties at some point or another. The difference between the ones that make good investments and the ones that don’t is how they respond.
Investors need to understand why they own whatever stocks they have in their portfolio. And this is something they can’t get just by asking ChatGPT for recommendations.
Without this, investors are in danger of selling stocks at the wrong time. Even if they find the right businesses, buying is only half the business – holding on is just as important.
A real-life example
A real-life example is WH Smith (LSE:SMWH). The FTSE 250 company’s working through an investigation into an accounting irregularity and intends to update investors next month.
That means there’s a big risk at the moment, but I like the firm’s position more generally. Its focus on travel outlets looks like a good one in terms of growth and margins.
The thing I need to weigh up is what expectations are reflected in the current share price. The stock’s down 45% this year, but what view of the future does that represent?
I’m holding for now, but I’m clearly going to need to be in a position to reassess my thesis when the news comes in December. And that requires me to understand what I currently own.
Asking for help?
One thing I’m definitely not doing though, is asking ChatGPT what to do. I might well use it as a source to find details of the announcement, but it’s up to me to decide what to do.
Artificial intelligence (AI) is great at finding and processing information quickly. But the investors I admire most – the likes of Warren Buffett and Charlie Munger – say that isn’t what matters in investing.
The best investors attribute their success to being more patient than everyone else, not more intelligent. And that requires a kind of understanding that you can’t get from ChatGPT.
