Stock Investing with AI: How to Use ChatGPT to Analyze Companies (Prompts Included!)

If you’re not using AI for investing yet, you’re seriously missing out big time! In today’s fast-paced world, understanding how AI can save you massive amounts of time on tedious stock research is crucial! 

Investing with AI tools like ChatGPT can streamline the process of analyzing companies, helping you make quick, informed decisions and uncovering insights that even human analysts miss! 

We’re going to share with you three actionable ways (with prompt examples) that even stock market beginners can use immediately. Before we dive deep into the technicalities, as the saying goes, “Garbage in, Garbage out”. You can’t ask good questions if you don’t have the right investing foundation.

Now that I’ve gotten your attention — let’s first walk you through the basics of stock investing. 

Stock Investing Foundations You Must Know Before Investing with AI

Key Difference between Stock Investing vs. Trading

• Objective: Investing focuses on wealth accumulation through compounding while trading aims to generate profits from short-term price movements
• Time Horizon: Investing focuses on the long-term, holding stocks for years, while trading can occur over a matter of weeks, days or even hours, depending on the strategy 
• Methodology: Investing is usually based on fundamental analysis of company performance, financial health and growth potential, while trading looks closer at technical analysis, market trends and price action

Two Key Principles of Investing in Stocks

• Have a business owner mindset
  • When you own shares of a stock, you’re basically buying a piece of a business. Analyze and invest in companies as if you’re a part-owner. With that consideration, you’ll then focus on the business model, financial health, management quality, competitive advantage, etc. 

• Ensure that there is a margin of safety
  • Price is what you pay, value is what you get. Companies, however great, should be seen as machines that generate profits — there is a right price to pay for each stock. What smart investors do is to buy great companies when they’re at a discount (undervalued).

Piranha Profits’ Approach to Stock Investing

Our investment approach is centered around our proprietary 7-step Value Momentum Investing™ philosophy. We identify great businesses and enter at optimal price levels. 

In our framework, we also take into account risk management and teach students how to build a diversified portfolio, in order to manage risk while still gunning for the best returns available. 

Now that you have a basic understanding of stock investing, let’s get into the nitty-gritties of how to use AI for investing. 

How to Use AI to Invest in Stocks

Stock Investing with AI: Analyzing a Company’s Business Model

Since we’re looking to invest like REAL (part) business owners, we must put on our thinking cap — what must we know about the stock before buying it? 

The following questions come to mind:

• What is the company’s business model, and how does it generate revenue?
• Who are the company’s main competitors and what differentiates them from the competition?
• What is the company’s track record for growth in revenue and profits
• What are the key drivers of demand for the company’s products and services?

And the list goes on… 

Thankfully, with the help of AI, you can now get answers to many of these questions within seconds. Yep, you’ve read it right. Within SECONDS. However, the biggest challenge with AI (or Large Language Models like ChatGPT) today is their tendency to “hallucinate” - that is, to provide unsubstantiated or outright inaccurate information/answers. 

The hack to reduce such instances of hallucination is to restrict the parameters of the LLMs. The easiest way to do this is to go right to the source documents provided by the companies that you wish to analyze and feed it to the AI, and key in instructions explicitly to restrict the AI’s retrieval of information. 

The first thing you need to do is to retrieve the source document. For every American company listed on the US exchanges, they’ll have to do quarterly and annual report filing with the Securities and Exchange Commission (SEC), and anyone is able to download the company’s Form 10-K (which is their annual report). 

Source: Meta’s Investor Relations

Using Meta Platforms (formerly known as Facebook) as an example, you can visit their investor relations website and locate the Form 10-K. 

Source: Meta’s Form 10-K

However, you’ll soon realize upon downloading the report that it’s a whopping 147 pages long! If you were to read it from cover to cover, it’ll probably take the entire afternoon. With the help of AI today, we can significantly shorten the process. All you have to do is upload this specific report into ChatGPT and key in the following prompt. 

💡GPT Prompt:
“Hi GPT, assume that you’re currently a world-class financial analyst working for a top-tier bank in equity research. Using only information that is provided in this document, give me answers to the following questions…”

And then you can type in the list of questions that you’ve prepared beforehand. 

Voila! You’ll know that business inside-out in no time! 

Stock Investing with AI: Analyzing a Company’s Economic Moat

Now that you’ve understood the core business model of the stock, another important aspect to consider is its current market position and more importantly, its economic moat. 

If you’re new to this term “economic moat”, it’s a phrase made popular by the investing legend, Warren Buffett. In short, it refers to the competitive advantage that a company possesses, which protects it from competitors and helps maintain its market share and profitability over time. This includes factors such as brand loyalty, cost advantages, network effects, and regulatory barriers. 

Guess what? GPT can now help us with moat analysis too! You can key in the following prompt, and the LLM will give you a score of 1 to 10 based on the quality of the company you’re analyzing. 

💡GPT Prompt:
“Hi GPT, can you explain the nuances of Meta’s business and why you think it has an economic moat? I would like you to rank the moat of Meta on a scale of 1 to 10, where 1 is no moat, while 10 is having a very wide moat.

To break it down further, you can give an individual rating for each of these segments; 1. Brand Loyalty and Pricing Power 2. Barriers to entry 3. Switching Costs 4. Network Effect 5. Economies of Scale” 

With the help of GPT, you can streamline your securities analysis, allowing you to make informed decisions at a much quicker pace. 

An important caveat is to treat AI as a tool to help you, rather than a crystal ball to give you quick and simple answers. As an investor, you have to continue reading and studying the companies that you own so as to sharpen and develop your own thinking and skillset. 

Stock Investing with AI: Analyzing a Company’s Earnings Report

While understanding the business is important, let’s not forget that the business environment is dynamic and evolving constantly. Likewise, companies do report their quarterly earnings and investors must keep abreast of their developments. 

Source: ChatGPT-4o

Another “cheat” you can GPT for is to upload the company’s latest quarterly report and get it to summarize and analyze it for you! On top of just the 10-Q, you can upload the company’s earnings transcript to get a better sense of what the management has outlined in the conference call. 

You can then proceed to ask GPT questions about:

• What are the main risks that current investors of Meta should take note of from this earnings report attached? 
• What are the major challenges or headwinds mentioned by management that could impact the company’s performance over the next few years?
• How has the company adjusted its guidance or forecasts in this earnings report, and what factors contributed to these adjustments?

And the list goes on… 

Source: ChatGPT-4o

Given the context of the earnings transcript and 10-Q, GPT can come very close to what Wall Street analysts talk about too 😉 

Conclusion

The introduction of Large Language Models in late-2022 was truly a game changer for those who knew how to exploit it. 

With this guide, we’re sure that you’ll be able to level up your stock investing game with AI. 

Before we go, we would just like to remind investors that understanding the company’s business model, economic moat and fundamentals is just one part of the equation. You must buy it at a fair/wonderful price too. 

Gain access to our proprietary investment tool, the True Value Finder™, to sniff out undervalued stocks and buy at the right price starting today!

Till next time, Keep Winning.