AI or Artificial Intelligence is all the rage right now. I was on a panel last week discussing how it will change our lives. One question posed to the speakers was on the subject of AI and investing. It was a popular question.

I am not an AI expert, but I do have a very strong background in investing. One of the other speakers was an “expert” in AI… but I fear he was not someone with a strong investing background, although he purported to have vast investment knowledge.

He put up a slide showing what his AI told him to do with his money. I called him out on his assertions based on AI. More on that in a moment.

First, let’s talk about how AI can help you.

It’s not the ChatGPT type of AI, that the other speaker was talking about.

There is another application of AI that has proven results already. Rooted in strong software teams backed by experience and large data sets.

I specifically am talking about the type of AI that my colleagues Bryan Bottarelli and Nate Bear have created using their trading methodology. Their two systems. ProfitSight and Daily Profits Scanner are on fire.

They are producing win after win for Monument Traders Alliance members.

You can watch their presentations on ProfitSight here and Daily Profits Scanner here.

While that is an application of AI that works, asking ChatGPT to come up with investments is a whole other story.

As a user of AI, you have to interpret exactly what the output is telling you to do. It’s not enough to trust what it tells you.

There is no robust software system with tons of back testing to lean on like the ones above, the ChatGPT style prompt system is basically an output based on a wide array of inputs from “stuff” on the internet.

That’s great for a term paper in college or high school.

But, in the real world, with real money, you need to know MORE than AI’s search harvesting capabilities. In other words, you have to make sure the info you are getting is not only accurate, but it’s also right for you!

Let’s go back to the speaker that was on stage with me. As a result of his AI inputs – prompts that he made asking AI for the best investment strategies to use today, one of his answer was to sell “cash secured puts”.

That strategy, as I pointed out to him, is one of the worst strategies to make money.

While it is a legitimate strategy, you’re not going to make a ton of money (one of his goals).

Cash secure puts require you to put up 100% cash to make a small amount of money while bearing all the risk. The strategy I use for put-selling requires you to put up 15% cash and has a 90% plus win rate.

But. Put aside the win rate. Let’s see how the two strategies compare with an example.

Use stock XYZ as an example. It’s trading for $20. The six-month put on XYX with a $20 strike pays you $2.

On a cash secured put, your best return is $2 divided by $20 or 10%. That’s a nice return. Doing the same trade my way would return you $2 divided by $3 or 66% as your margin requirement for this trade is 15% of the strike price or $3.

Clearly AI is not the end all or be all when it comes to investing, amongst other things. AI is a great tool, but you need to know more than AI when it comes to things like investing.

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