AI is Not a Tool That Can Successfully Predict Stock Market Values
July 10, 2023
Can Artificial Intelligence be used to successfully predict stock values?
My opinion is no.
The benefit of AI is the ability to search vast amounts of known data at an extremely fast rate. That will change many aspects of our lives.
Investing is different. It requires an opinion of the future. If you buy an investment, will the value increase? Should you sell because the value will decline?
The best source of vast amounts of information about stock values is the stock market. Think of the stock market as a giant information processing machine.
Millions of buyers and sellers of investments incorporate public and private information about a stock. They agree on a specific price and then buy/sell at that price.
The value of the stock is not a theoretical estimate. The value is based on an agreement between a buyer and seller to do a transaction.
AI can have a role to play that is based on what is known. If you want to study a specific company or industry, AI could be of assistance.
If you use that information to find “deals” meaning the market has mispriced a security that you hope to profit from then I would caution you. Evidence on having the ability to consistently predict the market shows that is not possible.
Research and investor experience has consistently shown that there is no magic formula to successfully predicting stock values.
AI is here to stay and will continue to get more advanced and sophisticated over time. Many will use AI and many companies that provide you goods and services will use AI.
As for investing, look to the vast numbers of stock market participants to determine the fair price of the stock. The best estimate of a stock is the price the stock is trading.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com