Clark Howard

Should I Use AI To Make Stock Trades?

Artificial intelligence, or AI, is to 2024 what the internet was in the late 1990s with the dot-com bubble.

It’s an exciting technology that finally has advanced enough to become real and applicable. Yet we’re still in the early frontier days. We don’t know which companies will survive, which ideas and use cases will endure and which new applications will bubble to the surface later.

Some tools are like a hammer, which is made for hitting nails. Others are multipurpose. And that’s the exciting part of AI — the endless possibilities. In theory, you can do and solve almost anything through good AI.

Should that include managing your finances and investments?

Should I Use Artificial Intelligence (AI) To Trade Stocks?

Should I use AI to trade stocks?

That’s what a Clark Howard listener recently asked.

Asked Paul in Arizona: "Clark, we know you are optimistic about AI and the potential benefits it will bring. My question is, what if I wanted to use it to help make stock trades? What are the benefits and potential downfalls?"

Before we get to Clark’s answer, I think we should note two things.

First, an entire garage of power tools offers different value in the hands of a master carpenter than an amateur who has never built a thing. Similarly, with AI, at least at this point, the knowledge and skill set of the person using the tools is extremely important to determine which of the divergent outcomes will occur.

Second, the question also becomes should you ever trade stocks at all? Clark is on record, and has been for decades, as being in favor of slow, steady, long-term investing in a widely diversified and inexpensive set of choices. In other words, he doesn't want you risking any meaningful amount of your portfolio on a small number of individual stocks. Much less day trading or swing trading in an attempt to generate outsized returns.

Clark Howard’s View on AI and the Future of Investing

Back to Paul’s specific question.

Clark called AI’s role in investing “a serious hot button in the investment community.” He noted that giant enterprises are spending big bucks on research and human brainpower trying to figure out how to leverage AI. Especially in the area of managing hyper-sensitive, individualized portfolios.

In Clark’s opinion, AI geared toward stock picking is going to be heavily based on biases.

“There’s nothing yet that I’ve seen in the financial literature that shows anybody who’s come up with a winning strategy that stands the test of time using AI for picking specific stocks, buy/sell signals, things like that,” Clark says. “That has been a path paved with misery.

“When people get into the, ‘Red light. Green light. Buy this, sell that. Do this, do that. Do it right this second. Buy this, buy this other thing, add more,’ I’m skeptical about that being a big thing or something that we’re going to see soon.

“I could eventually be proven wrong. And AI will have so many tentacles good and bad that no one can even anticipate yet. But on that one, I’m not holding my breath on being able to give buy/sell signals on individual stocks.”

Final Thoughts

We’re in the early days of AI, its applications and figuring out what role it may or may not have when it comes to investing.

Clark isn’t a fan of trading stocks. He also thinks it’s early days in terms of AI as a proven, helpful tool for investors.

At this stage, AI probably can best help those who are already experts. Even then, many versions of AI lack the real-time, widespread data and inputs that could conceivably give you an edge.

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