I try to keep up with the changes in technology because everything runs on technology. Your TV has a computer in it as does your car, your fridge, you washer & dryer, and almost anything that runs on electricity. Technology like the microchip revolutionized how we do everything and the next evolution in that is Artificial Intelligence or AI. Interestingly, I came across this article from PC Magazine that states AI does a much better job of financial analysis than humans. I’ve already written about my disdain for financial advisors here but an unbiased AI might be worth my while.
The article is based on this research paper and below is a copy of the abstract.
We investigate whether an LLM can successfully perform financial statement analysis in a way similar to a professional human analyst. We provide standardized and anonymous financial statements to GPT4 and instruct the model to analyze them to determine the direction of future earnings. Even without any narrative or industry-specific information, the LLM outperforms financial analysts in its ability to predict earnings changes. The LLM exhibits a relative advantage over human analysts in situations when the analysts tend to struggle. Furthermore, we find that the prediction accuracy of the LLM is on par with the performance of a narrowly trained state-of-the-art ML model. LLM prediction does not stem from its training memory. Instead, we find that the LLM generates useful narrative insights about a company’s future performance. Lastly, our trading strategies based on GPT’s predictions yield a higher Sharpe ratio and alphas than strategies based on other models. Taken together, our results suggest that LLMs may take a central role in decision-making.
I personally use AI for many things these days including generating images for this blog and occasionally posting answers from questions that I have and it is simply amazing. The scary thing is that we’re in the early stages of this technology. I compare it to the old noisy modems we used to use to connect to the internet at whopping speeds of 56kbps. If you want a flash to the past, watch the movie Blackberry which was released last year. I watched it this past weekend and boy did it bring back memories!
The only question in my mind right now is how soon will this truly transform all aspects of our lives including our personal finance lives. It’s both thrilling and frightening at the same time.
Share The Wealth
What do you think? Is AI a part of your personal finance life yet? If not, when do you think it will be? Let me know in the comments below.