What ChatGPT gets wrong about investing


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Unless you have been living on a deserted island, you would know that we are confronted with the doom and gloom messages of an impending stock market crash almost every day.

I typed the words 'stock market' into a YouTube search and the first five videos were all about the impending doom surrounding the stock market.

Yet none of these videos were aimed at helping the viewer understand what to do in the event the stock market does pull back or crash.

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The other big issue that the world seems to be focused on is artificial intelligence (AI), with many asking questions or looking for solutions from ChatGPT.

I did what I suspect many are already doing, which is to ask ChatGPT to write a blog post on the three things I could do to avoid a stock market crash.

The output was seriously alarming, as none of what it suggested was good information or advice on how to manage or avoid a crash.

What were the three things ChatGPT suggested I do? Firstly, it advised me to diversify my portfolio and shared the old adage of don't put all your eggs in one basket. If the stock market crashes, no amount of diversification is going to help you unless you move your money to cash or real estate before the crash starts.

Unfortunately, this is not how investors think, particularly as the stock market is generally overly bullish before a crash starts and investors are loath to exit as they are making good returns.

It then advised me to regularly rebalance my portfolio to avoid over-exposure to one asset but this only increases your costs and risk.

I am against rebalancing in a bull market but to suggest you do it in a bear market or a crash left me a little perplexed. Lastly and possibly the best bit of advice was to adopt a long-term perspective but it also included a tip to dollar cost average, which in a stock market crash is the worst thing you can do for your portfolio.

No one knows when a crash will occur with a high degree of accuracy. Given this, it pays to be a Boy Scout and get prepared, as it will allow you to manage your stocks in the event the market does fall heavily.

No one seems worried when the stock market is rising but irrespective of the direction of the market, it's important to always have an exit strategy in the event your stocks fall. This is very simple to implement using a stop loss as it minimises your downside risk.

While it is inevitable that the stock market will crash again, we don't know when this will occur. If you're concerned right now, that means you need to plan because if something does happen, you know exactly what to do and how to react.

The best and worst performing sectors this week

The best performing sectors include Information Technology up more than 2% followed by Consumer Discretionary and Materials, which are both up more than 1%. The worst performing sectors include Consumer Staples down more than 3% followed by Healthcare down more than 2% and Utilities down more than 1%.

The best performing stocks in the ASX top 100 include Altium up more than 30% this week after reporting strong earnings and revenue growth for FY 2023. This is followed by IDP education up more than 14% and Domino's Pizza up more than 10%.  The worst performing stocks include Alumina down more than 15% followed by Ramsay Healthcare down more than 12% and Iluka Resources and Wisetech Global, which are both down more than 10%.

What's next for the Australian stock market

After falling more than 4% in the last 19 days, the Australian stock market is currently in positive territory for the week. Initially, the market fell at the start of the week but it has closed higher than it opened over the past three days, which is a positive sign.

As I have previously mentioned, this year has been a constant battle between the bulls and bears although this week it seems like the bulls might be coming back. That said, the evidence is far from convincing, which is why I continue to say that you need to be cautious and not jump into stocks prematurely.

I am not a subscriber to all of the noise about the stock market crashing as I do not believe our market can or will crash. The All Ordinaries Index has been trading sideways for quite some time and has not been overly bullish in the past few years, which means the signs of a potential crash are just not there.

Looking short term, it is possible that this week is a turning point and that the market will rise consistently over the coming month or so although this is unconfirmed. Given this, it's wise to have the mindset that the market could fall for another week or so before it turns to rise. If it becomes more bullish, the market should rise into the end of this week and next week. If it closes lower this week, then expect at least another down week.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.