Best Ways to Use AI For Long Term Stock Investing

Introduction

I’ve been blogging about stocks since 2008. So it will not be wrong to call me an old style stock investors. My methods still works but I thought why not explore the use AI for long term stock investing.

While I was reading some stuff related to AI’s integration with fundamental analysis powered stock investing, I saw a query from this guy. The way he structured his query made me think about AI in more detail.

Frankly speaking, after reading his query I’ve that deeply the AI is penetrating into the fabric of human thoughts. More and more people now wants to embed some AI in their day to day activities (work or private).

The guy asked:

• If anyone’s using AI for trading and long-term picks. He sounded like a seasoned investor, doing a bit of in F&O too.

It got me thinking. Even us, experienced folks, are eyeing AI to sharpen our game.

But is it worth it for long-term holding?

This is what I tried to explore and I’ll share my understanding in this blog post.

1. Does AI Fits Long-Term Stock Investing?

Long-term investing is about patience.

We buy solid companies and hold for years. When I buy a stock, I buy them with the objective of holding it in my portfolio for at least 7-10 years.

How AI can help in this regard? AI can help here because it crunches data fast. It spots patterns we might miss.

For example, it can flag undervalued gems or growth stories.

But after spending some time with AI in the last several month, I’ll also add that, it’s NOT magic.

It’s a tool that can certainly boost our fundamental analysis. We can use AI to cut research time from days to hours.

But even after all the data analysis and news reading, the final decision that our brain makes is still superior.

So coming back to our topic of AI’s use in long-term stock investing, is it possible? I think it is very much possible.

• Ai based tools now handle Indian markets well, with NSE and BSE data.
• Even free ones give solid insights.
• But, my suggestion is start slow. Don’t dump your old methods overnight.

If you are new to stocks, I’ll suggest integrating AI with traditional fundamental analysis.

2. Smart Ways to Use AI

1. One top way is sentiment analysis. AI scans news and social buzz. It tells you how the market feels about a company (or the market in general). Say, for a stock like Nestle India, AI can sum up recent headlines. It highlights positives like new deals or risks like competition. This type of read can build our view on management and moat.
2. Then there’s predictive analytics. AI models valuations based on past financials. It compares growth and profits to peers. Tools forecast if a stock might double in five years. But here, we must remember that this predictions are based on history. What if a pandemic hits again – like 2020? That’s where human knowledge, understanding, and logic will outshine the AI.
3. Automated research is can also be a game-changer. AI can digs into annual reports and websites. It pulls out business models and income sources. With AI, we need not do endless reading any more. We can also use AI to summarizes YouTube videos on industry’s leading stocks. Since last about 18 months, I’ve been using it to build a perception about bank stocks. Why? Because I my self was find it hard to understand their underperformance. Reading news article and blending my information with AI overview certainly helped. AI can really look at the industry from a birds eye view.
4. Portfolio tweaks are also possible using AI. How? We can ask the AI to assess risks associated with our stock portfolio. It can then suggests balances. AI can check financial health, like debt levels for our stocks. For long holds, it can simulate scenarios spanning over years. This way we can keep our basked intelligently diversified.
5. Finally, we can use AI for enhanced screening. Though I’ll admit, till now I’ve not found a tool that can do it as efficiently. I’m used to using my Stock Engine for screening and analysis. I believe it more because I know what kind of algorithm is working in the background to render the results. I’m sure, AI might do these things eventually, but blending AI’s analytics with a human-logic driven algorithm sounds more safe, right?

3. Tools That Can Work for Us (In India)

We need tools that can understand our markets in India. I’ll list down some for you.

• Jarvis Invest is great. It’s AI-built for Indian stocks. It analyzes fundamentals in real time. Sends alerts too.
• Perplexity AI pulls live data. Query it for valuations or news summaries.
• Stock Engine (developed by Getmoneyrich.com). Though this tool is not AI enabled yet, but what it make like other AI tool is the financial algorithm that works behind it. Those kind of iterations are not humanly possible for us. We cannot execute those maths on pen and paper. Some might say they can do, but it will take several days or weeks to analysis 5-year data of stocks. I invite you to read the Stock Engine’s Tutorials here to know more about it.

We can also not forget our famous chatbots: ChatGPT, Gemini, etc. They’re free.

We can ask these free chat-bots to role-play as analysts. “Is this stock undervalued?” They draw from public data and can do the analysis for is. But yes, we cannot reply on these analysis completely because these AI’s can hallucinate and can get biased.

Though, I think they are a great starting points. Start with free tiers. Test on old picks. Scale up if it clicks.

4. What Are The Limits of Using AI For Stock Investing?

AI isn’t perfect. It can spit out wrong info.

If data’s old, valuations flop. I’ve seen it hallucinate facts. So, always double-check.

It relies on past trends. Can’t predict shocks like wars or policy changes. I think, only human judgment can catch those nuances. Like ethics in management.

Biases creep in too. Training data might skew results.

And it’s a black box for us. Hard to know why it is saying things so confidently. We must be careful. You know, a right for someone maybe wrong for us. Ambanis’s doing a world tour every month, for fun, can be right for them, but for us, it can be a financial disaster.

Volatility of our stock market is hard to predict – even for AI’s. Why? Because there are too many external factors can influence our stock markets. We cannot treat AI as our crystal ball. Why? Because there are no crystal balls in real life.

But I also believe that AI can shine in calm markets. But if not handled well, it can worsen losses elsewhere.

My take? Use AI for 20% of work. Verify everything. It’s a helper, not the boss.

5. Reliable Method for Stock Investing

Let me walk you through how I invest now. It’s all about fundamentals. I’ve practiced this for many years.

I start with Stock Engine. It’s from GetMoneyRich.com. I co-developed it.

Let me tell you my method of investing, step-by-step:

1. I use the Stock Engine to screens stocks based on criteria. You can read about how the Stock Engine compares with other stock screeners.
2. Next, I check the stock pages of screened picks. Inside the page, I get the following answers:
   • Is it undervalued?
   • Is the Growing?
   • Is its business Profitable?
   • Is the company Financially healthy?
   • How’s management?
   • What’s its competitive moat? Answers to these questions gives me my first take on the company.
3. Now, based on the perception I’ve made about the screened, I pick one or two stocks and record it on my notice board. Then I dive deeper. I’ll read at least 20-30 latest news articles on these stocks. I may also watch YouTube videos on these company, continuously, for at least one day. This helps grasp the business model. Sources of income. Products or services. Industry leaders.
4. I will also visit the company’s website. Skim annual reports. Not too deep, since Stock Engine already scanned them. It generated scores for me.
5. Like this, I’ll spend 5-6 days on research. If convinced, I buy. When I’m buying I doing it with a mindset that I’ve to hold it for 7-10 years. The average holding time of stock in my portfolio is about 3.8 years.

This approach has been my way for a decade.

Stock Engine was launched in 2021. Before that, from 2013, I used to do my on the Stock Analysis Worksheet. the Stock Engine is its updated version of this worksheet,

6. Where and How to Insert AI into This Method

Now, let’s slot AI in. Without changing the core. I’ll show spots to insert the AI, keeping things efficient as efficient as belfore:

• During Screening: After Stock Engine filters, feed tickers to AI like say ChartGPT. Ask questions related to quality of management, economic moat, future potential, etc. These are metrics that are not so easy to quantify usied past data. Search AI like this will further refine our perception that we’ve built using tools like the Stock Engine.
• Deep Research Phase: For news, use of AI can summarizes 30-50 news pieces for us. How I’ll us my chatbot? First, I will do my own reading of at 10-20 niews article. Once my mind gets a grasp of the company, I’ll ask the the ChatBot to do the balance work. I’ll give it past and current news feeds. Then, I’ll ask it to summarize all for me. Then I’ll also ask me to list top takeaways.
• Before Buying: I will also the ChatBot to do simulate the stock for 7-10 year holding time. I’ll ask it to tell me what kind of risks I can expect with this stocks. I’ll ask it to compare my stock an industry leader. This way I’ll get a perception about what are risks (or benefits) of investing in non-industry leaders when holding time is as long as 7-10 years.

This way, AI fits seamlessly into our old traditional method of stock investing. Our method stays intact, it just got smarter.

Conclusion

AI is reshaping long-term investing. It is our tool to make smarter decisions, faster.

But blend it with your wisdom. I’ve seen gains from it.

Yet pitfalls lurk. So, my advise is to use the AI by remembering its limits.

What do you think? Tried AI yet? Share in comments. Let’s keep learning together. Stay invested wisely.