Artificial intelligence (AI) is giving some businesses a real edge over their competitors. So I thought I’d try asking Anthropic’s Claude about investing in the FTSE 100.
I asked it what the best FTSE 100 stock to buy right now is. And while I had some high expectations, I was impressed with the answer it gave.
What I expected
Before asking, I thought it might give 3i (LSE:III) as an answer. Over the last five years, the stock is up 235% – more than any other FTSE 100 stock – and this hasn’t happened by accident.
Around 75% of the private equity firm’s portfolio consists of a stake in a European discount retailer called Action. And this has been growing rapidly and is still increasing sales by around 21% per year.
On top of this, 3i has managed to get itself into a position where it has a huge advantage over its peers. This comes from the fact it invests its own capital, instead of that of external investors.
As a result, the company can be patient and wait for opportunities to present themselves, which allows it to be greedy when others are fearful. But there are clear risks for investors to consider.
These include the concentrated nature of its portfolio and fact that even the best capital allocators – like Warren Buffett – can make investment mistakes. But no stock is entirely without risk.
That’s why I thought Claude might have identified 3i as the best FTSE 100 stock to buy right now. But it didn’t and I think the answer it gave is much better.
What the AI said
What Claude actually said was the following:
“I aim to be direct and clear about investment advice: I cannot and should not recommend specific stocks to buy, as this would constitute financial advice, which I’m not qualified to give.”
Instead, it suggested I do my own research, consider my time horizon, and focus on the fundamentals of the businesses I might invest in. Claude doesn’t give financial advice, but that looks like a good plan.
It’s actually better than if Claude recommended me a specific stock. Even if it had been right, without understanding the company – by doing my own research – it would be very difficult to invest in it.
All stocks go through ups and downs. And the only way for investors to be confident enough to persist with them when things are volatile is by having a clear idea about the underlying business.
When a company’s share price falls, it’s either due to a temporary issue or a permanent problem. In the former case the stock is likely to recover, but in the latter it might be time to consider selling.
The only way to know is to understand how the business works and what’s going on with it. And that’s something that can only come from proper research, rather than looking to AI for stock tips.
Is AI the future?
While I’m still convinced AI has huge potential, there are some things that people have to figure out for themselves. Investing is one of them.
I don’t see buying stocks on the basis of recommendations from an AI assistant as a recipe for long-term success. So I’m impressed Claude knows where its limits are.
This post was originally published on Motley Fool
