We asked ChatGPT about red flags when looking at stock investments, but their answers show they\u0027re not ready to take over yet. Read more.
Artificial intelligence has been a theme for some time, but it now looks like it is going more mainstream. In honour of this, we are going to let the robots write this column — just kidding, sort of. We decided to ask ChatGPT about red flags when looking at stock investments. In keeping with our theme, we asked for five red flags. The robot’s responses are highlighted below, and we will provide our commentary and grade its performance. Hopefully, we won’t be putting ourselves out of a job here.
The bot nailed this one. High debt can absolutely destroy a company at times, and you need to know the debt risk if you are buying an investment. The debt-maturity schedule is also important. Having large debt maturities during a weak period in capital markets can be very hazardous to a company’s health. We will give the robot an A+ on this answer. We consider balance-sheet strength one of the most important factors when analyzing an investment.
Now, the AI bot didn’t discuss valuations here. A company with weak sales can sometimes still be an interesting investment if it is priced right — that is, a bargain-basement valuation. We will dock the robot for not mentioning valuation, but it still gets an A on this answer.: Negative earnings can indicate that a company is struggling to generate profits and may be at risk of financial trouble.
ChatGPT improved a bit with this answer. Studies have shown that sector allocation is more important to investment performance than stock selection. If you are thinking of investing in a company, you need to check to see how the industry is doing first. It is very hard for companies to swim against the tide of an industry that is struggling.Article content
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