AI vs. Human Judgment | Pocket Byte #38

In this episode of The Wealth Effect, we dive deep into the growing battle between artificial intelligence and human intuition in the world of investing. With AI tools like ChatGPT now recommending stock and crypto portfolios, are we entering a new golden age of data driven investing or walking straight into a self-fulfilling prophecy?

Episode Transcript

(00:00):
Welcome back to

(00:00):
the Wealth Effect.
Today, we're talking about
AI versus human judgment.
When it comes to financial decisions
in the stock market, crypto, and other
financial instruments,
let's fill your pocket.
With the rise of better AI technology,
it's getting to the point where people are
starting to ask, AI, what are
good companies to invest in?

(00:22):
I even asked ChatGBT myself, and it
recommended things that I actually owned
or owned before.
The top five recommendations were
all big technology companies.
Then, recommending that two-thirds of
your portfolio should be in stable,
quality companies, and the remaining
one-third should be in riskier companies

(00:43):
that are blowing
up right now.
Which, in all honesty, is a really good
recommendation for the common person.
I think at this stage, we all know AI
can analyze insane amounts of data.
Plus, these questions have been asked
before, so it keeps
improving on its answers.
Even the response of why I should invest
in them is very deep and technical,

(01:05):
which actually makes sense to me, and
really doesn't show any
flaws in its reasoning.
This type of technology is easily
accessible by everyone today, and they can
now get top-picked stocks that
mathematically make sense and allows
everyday people, no matter their financial
literacy level, to understand why they are

(01:28):
good stocks
to invest in.
I think from my point of view, there
is and will be flaws or exploits
that might or will happen, as more
and more people rely on this financial
information.
The first being, the
self-fulfilling prophecy.
This is simple, because the more chat
recommends a certain stock, the number of

(01:49):
retail investors, which is me and you,
will start to invest in it, and thus
making the price go up, simply because
it was recommended more, not out of any
substantial change
in the company.
The second being that AI can grab
information that is inaccurate,
misleading, or used to create FOMO
in the stock or specific industry.

(02:12):
That will lead AI to recommend the stock
due to its strong and positive appeal
across the web.
And this has been seen before, when
AI is fed, data that across the web
might be false, but presents
it to the user nonetheless.
The third being that retail investors
are at a significant disadvantage,

(02:34):
as we take recommendations of this
data, while institutional investors,
which are big companies and investing
firms, have specialized AI tools that will
scrape the data ahead of time and make
profits from the retail investor blindly
following AI
recommendations.
This then leads to the paradox that once

(02:54):
people stop getting that stock recommended
from AI, it'll drop in price, leaving
people in a lost position
if they don't get out
early enough.
Then the next stock recommendation
will jump and the cycle will just keep
repeating itself.
And lastly, which can be more likely than
most people think, is manipulation from

(03:15):
the company itself.
And this is done in the background without
anyone realizing it until they get caught,
and it'll bring out the light in the model
that's going into the black box that is
being manipulated.
For example, why wouldn't a public company
want to promote its own
stock as a top choice?
They wouldn't do it all the time

(03:35):
because that'll make it too obvious and
suspicious.
So they'll only show it to a few people
at a time, but always as a top choice.
Because the function of a company is
to generate profit for its investors,
and that could include raising its stock
price via promotion of its own AI models.
There is and will be laws about

(03:56):
this, but laws don't stop bad actors.
They'll just take the fines and be able
to function as they wish, as long as they
keep paying the fines or
no one figures it out.
I think all this being said, AI still will
be one of the top tools, if not the only
tools, for retail investors and
specialized proprietary AI models for

(04:18):
institutional
investors.
The biggest thing to keep in mind
is that AI will never make you rich.
They can't spot the gems in all the noise,
where it takes a human instinct to leap on
to the opportunity and forget the
numbers and only see possibilities.
Though, you'll never get even half of the
hits of these investments, and the few you

(04:41):
do hit will make
it worth it.
While you might get 80% safe
recommendations from AI models,
you will always be the final
approval of where your money goes.
And the less you know about an
investment, the riskier it gets.
And if you leave it all to an
AI, you would max out your risk.

(05:01):
Until next time.