The investment advice for first-time investors from an expert and ChatGPT had striking similarities, but the expert provided far more nuance.
Daily Investor analysed the investment advice from the investment research head at FNB Wealth & Investments, Chantal Marx, and the artificial intelligence chatbot ChatGPT.
Prior to giving advice, both Marx and ChatGPT cautioned that, with any investment, there are risks involved.
“Investing can be a rewarding way to build wealth, but it’s important for beginners to approach it with caution and a solid understanding of the basics,” ChatGPT said.
“Investing for the first time can be daunting – particularly when building your own portfolio by buying and selling company shares,” Marx said.
“Investing in the stock market is a ‘zero-sum’ game, meaning that for every winner, there is a loser.”
While it is inevitable that investors will pick the wrong stocks at some point in their investment journey, Marx said there are some strategies investors can use to minimise their losses.
There were many similarities between the expert and ChatGPT’s tips for beginner investors.
Both focused on the importance of being educated and well-informed before making investment decisions.
“Before you start investing, take the time to educate yourself about the basics of investing. Understand different asset classes (stocks, bonds, real estate, etc.), investment vehicles, and risk management,” ChatGPT said.
In a separate tip, it also emphasised the importance of staying informed about your investments.
“Regularly review your portfolio and be aware of any changes in the market or economic conditions that may affect your investments,” it said.
“Continuously educating yourself will empower you to make informed decisions.”
Marx said that, given all the investment opportunities available on the JSE and internationally, it is important to invest in what you know.
In other words, investors should limit their focus to countries, companies, and industries they know.
This is not to say that every company an investor knows will be a good investment – but it is a good starting point to build their research.
An investor can also use ‘invest in what you know’ to eliminate certain stocks from their watchlist or perhaps sell them if they are already invested.
Both ChatGPT and Marx also highlighted the importance of setting clear investment objectives.
“Define your investment goals. Whether it’s saving for retirement, buying a home, or funding your child’s education, having clear objectives will help guide your investment strategy,” ChatGPT said.
Marx emphasised the need for an investor to decide beforehand how long they want to stay invested and when and why they would sell.
She said that if an investor is investing for the long term, it is important not to look at short-term fluctuations.
Equities are volatile in nature, and by following the price of stocks too closely – an investor could get overwhelmed and make an incorrect investment decision without conducting due diligence.
She said it is also important to decide when and why an investor would be willing to sell.
“If you are investing for the long term, you still need an exit strategy. While you won’t necessarily have a ‘profit target’ or ‘stop-loss’ in place, you need to decide in what set of circumstances you would sell the investment,” she said.
“It could be that during your regular review of your holdings, you find that the fundamentals have deteriorated, or you have identified other opportunities that potentially offer more upside.”
“Don’t hold the stock simply because it has done well for you in the past.”
Marx and ChatGPT repeated the old investment adage, ‘Diversify your portfolio’.
ChatGPT explained that diversification involves spreading your investments across different assets to reduce risk.
“Don’t put all your money into one investment; instead, diversify across different sectors and asset classes to minimize the impact of a poor-performing investment on your overall portfolio,” it said.
Marx echoed this sentiment but added a caveat – diversify, but do not overdo it.
“Don’t put all your eggs in one basket” is one of the most important investment principles for professional and retail investors.
By diversifying holdings across several companies, sectors, and geographies, an investor can reduce their portfolio risk dramatically.
However, the benefit of diversification begins to fade when an investor invests in too many stocks, and their portfolio begins behaving like a market ETF.
Most experts recommend that a portfolio has at least 20 stocks and no more than 30 to get a good balance of managing risk without sacrificing return unnecessarily, she said.
8 investment tips for beginners
Below are the 8 investment tips Marx and ChatGPT gave for beginner investors.
|Invest in what you know
|Set clear goals
|Beware of the “next big thing”
|Price matters – it comes down to the fundamentals
|Start with a budget
|Try not to get emotionally involved
|Emergency fund first
|Decide how long you want to stay invested
|Understand risk tolerance
|Decide when and why you would sell
|Have a long-term perspective
|Contribute to your trading account regularly
|Diversify your portfolio
|Diversify but do not overdo it