chatGPT, a conversational chatbot, released by openAI last month has taken the world by storm! Just have a look at the following chart on the adoption of chatGPT by the world at large.
chatGPT generates written detailed text based on written prompts. The quality of the text is as good as any and with very few tweaks, one can produce well-crafted documents pertaining to an underlying idea or concept.
I decided to give it a whirlwind at crafting a summary of my basic investment principles to see how the bot interprets them and find out whether the text it produces corresponds with my premise in crafting these investment principles
Below is verbatim (partial content, highlighting the key concepts as interpreted by chatGPT ) generated by chatGPT!
- Stay the Course:
[chatGPT] Staying the course means sticking to your long-term investment strategy, even when there are ups and downs in the market. It’s important to remember that investing involves taking on some level of risk in exchange for the potential for long-term growth. There will always be market fluctuations and it’s natural to feel anxious when the market is down. However, if you have a diversified portfolio and a long-term investment horizon, it’s generally a good idea to stay the course and ride out the market’s ups and downs, rather than making impulsive decisions based on short-term market movements. [chatGPT]
- Keep it Simple:
[chatGPT] Keeping it simple in investing means focusing on a few key principles and avoiding overcomplicating your investment strategy. Some tips for keeping it simple in investing include:
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- Start with your financial goals: Clearly define your financial goals and the time horizon for achieving them. This will help guide your investment decisions.
- Diversify your portfolio: Spread your investments across a variety of asset classes, such as stocks, bonds, and cash, to help manage risk.
- Keep your fees low: High fees can eat into your returns, so it’s important to choose investments with low fees.
- Avoid overtrading: Trading frequently can lead to higher fees and taxes and may not necessarily improve your investment returns.
- Use low-cost index funds: Index funds offer broad diversification at a low cost and can be a good option for many investors.
- Avoid trying to time the market: It’s generally not a good idea to try to predict short-term market movements. Instead, focus on your long-term investment strategy. [chatGPT]
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- Follow the Cash
[chatGPT] Following the cash in investing means focusing on companies that have strong cash flow and are able to generate consistent profits. Cash flow is the amount of cash a company generates from its operations after accounting for operating expenses and capital expenditures. It’s an important measure of a company’s financial health and its ability to pay dividends, pay off debt, and invest in growth.[chatGPT]
- Disawow macro investing
[chatGPT] Macro forecasting is the process of predicting the future direction of economic variables, such as interest rates, inflation, and employment. While it can be tempting to try to use macro forecasting to make investment decisions, it’s important to recognize that such predictions are often unreliable and can be influenced by a wide range of factors.[chatGPT]
- Be cheap within Reason
[chatGPT] Being cheap within reason in investing means looking for opportunities to save on fees and expenses, while still being mindful of the potential impact on your investment returns.
Fees and expenses can have a significant impact on your investment returns over the long term. For example, if you are paying high fees for mutual funds or other investment products, a portion of your returns may be going to pay those fees, rather than staying in your investment account.
One way to be cheap within reason is to look for low-cost investment options, such as index funds and exchange-traded funds (ETFs). These types of investments tend to have lower fees and expenses compared to actively managed funds, which can result in higher net returns for investors. [chatGPT]
- Loath originality
[chatGPT] It’s generally not a good idea to loathe originality in investing. In fact, being open to new ideas and approaches can be an important part of successful investing.
One of the key principles of investing is diversification, which means spreading your investments across a variety of asset classes and individual investments to help manage risk. This can help reduce the impact of any one investment’s performance on your overall portfolio. [chatGPT]
- Risk minimization through portfolio sizing
[chatGPT] Portfolio sizing refers to the process of determining the appropriate allocation of your investments among different asset classes and individual investments. One way to use portfolio sizing to minimize risk is to diversify your portfolio.
Diversification is the process of spreading your investments across a variety of asset classes and individual investments to help manage risk. For example, you might allocate a portion of your portfolio to stocks, another portion to bonds, and a third portion to cash or cash equivalents. Each asset class has its own set of risks and potential returns, and diversifying your portfolio can help reduce the impact of any one investment’s performance on your overall portfolio. [chatGPT]
- Disawow market timing
[chatGPT] Market timing is the practice of trying to predict short-term movements in the financial markets and making investment decisions based on those predictions. It’s generally not a good idea to rely on market timing when making investment decisions.
One of the challenges of market timing is that it is difficult to accurately predict short-term market movements. Economic conditions and market trends are constantly changing, and it can be difficult to anticipate how these changes will affect the markets. In addition, even if a market timing strategy is successful in the short term, it may not necessarily lead to long-term investment success. [chatGPT]
- Sell discipline
[chatGPT] Sell discipline in investing refers to the ability to stick to a predetermined plan for when to sell an investment. Having a sell discipline can help investors avoid making impulsive decisions based on emotions and can help them stay focused on their long-term investment goals.
There are a number of different approaches to sell discipline, and the best one for you will depend on your investment goals and risk tolerance. Some common strategies include:
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- Selling a portion of your holdings when they reach a predetermined price target: This can help you lock in profits and manage risk.
- Selling a certain percentage of your holdings when they reach a predetermined level of profit or loss: This can help you manage risk by limiting your potential losses.
- Selling when certain market or economic conditions are met: For example, you might sell if the market enters a prolonged downturn or if there are significant changes in the economic environment.
- Selling when your investment thesis no longer holds: If the reasons you initially invested in a particular security no longer apply, it may be time to sell. [chatGPT]
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- Strive to maximize luck [chatGPT]
It’s generally not a good idea to try to maximize luck in investing. While luck may play a role in the performance of individual investments, it’s important to recognize that investing involves taking on some level of risk in exchange for the potential for long-term growth.
Successful investing is more about following a disciplined, long-term approach, rather than trying to maximize luck. This means setting clear financial goals, developing a diversified investment portfolio, and staying the course through market ups and downs.[chatGPT]
Whats my takeaway?
- The generated text for the majority very clearly captures the essence of ideas I want to convey through these investment principles!
- However, there are some anomalies in how I interpret the philosophy and how chatGPT does. For example,
- chatGPT’s interpretation of be cheap within reason is focused on saving fee and expenses as opposed to my idea for being flexible in paying up for purchasing stocks of quality businesses
- It does not like my idea to loath originality in investing and
- It also does not like that I want to strive to maximize my luck in investing
To conclude, I am glad that not everything in my thinking is purely based on worldly wisdom (as know to a chatbot) and there is a hint of a contrarian streak in my philosophy for investing!