Fellow Fools,
The world has a new toy.
The AI chatbot ChatGPT has taken us by storm, and we’ve not even scratched the surface of where this might lead.
As just one example …
My team at Stock Advisor Canada works hard to bring our members market-beating stock recommendations every month, so naturally, I thought I’d evaluate ChatGPT’s investment recommendation chops. What can the chatbot suss out about stocks? Does it know things we don’t know?
I put Bombardier (TSX:BBD.B) to the test.
Bombardier is one of the Canadian market’s better-known stocks. Historically, it’s also been one of the worst companies imaginable. (“Dumpster fire” comes to mind when I think about the best way to describe Bombardier’s legacy performance — both as a company and stock.)
However, since bottoming in mid-2022, Bombardier has been one of the best-performing stocks in the Canadian market, tripling from its lows.
What gives? Is there more where this came from?
Admittedly, I haven’t followed Bombardier very closely. Its reputation has been enough for my colleagues and I to look elsewhere. Therefore, we’re not entirely up to speed on what an investing case for Bombardier might be.
Enter ChatGPT. In the spirit of investigation, I decided to ask the chatbot about Bombardier’s suitability as a five-year investment. I wanted to know what (if anything) I was missing about the stock — and what (if any) mistakes ChatGPT might make.
I asked: “What are 3 reasons why Bombardier is a good five-year investment?” Here is the verbatim response I got on April 24:
“While I’m an AI language model and not a financial advisor, I can provide you with three reasons why some investors might consider Bombardier to be a good five-year investment:
1. Market Position and Diversification: Bombardier is a global leader in the aerospace and transportation industries. The company is known for its diverse product portfolio, which includes business jets, commercial aircraft, and rail transportation solutions. This diversification helps to mitigate risk and provides growth opportunities in multiple markets.
2. Growth in Aerospace and Rail Sectors: The aerospace and rail industries are expected to experience significant growth in the coming years, driven by increasing global air traffic, urbanization, and infrastructure development. As a prominent player in these sectors, Bombardier is well-positioned to capitalize on these trends and benefit from the increasing demand for its products and services.
3. Innovation and Technological Advancements: Bombardier has a strong track record of innovation and technological advancements in its products, which enables it to stay ahead of competitors and adapt to changing industry trends. The company’s continued investment in research and development will likely contribute to its long-term growth and success.
Please remember that investing always carries risks, and it’s important to do thorough research and consult with a financial advisor before making any investment decisions.”
To be fair, these do indeed qualify as 3 “reasons.” Literally, ChatGPT did as asked. So one lesson here is that as more people use ChatGPT, we’d all do well to learn how to give it more specific prompts.
And I do have to congratulate the developers for all the warnings about doing your own research and being careful when you invest. Well said, and ditto. But as for my question, the problem with ChatGPT’s “reasons” is that they aren’t good reasons.
How Useful Was ChatGPT’s Answer?
To start, time horizon wasn’t part of the tool’s response. And there’s probably not a variable that’s more important than time when it comes to investing.
Beyond this, ChatGPT whiffed on the fact that Bombardier no longer has a rail division.
This essentially nixes the first and second reasons the chatbot provided.
Furthermore, there’s an overall airiness to the response that simply doesn’t meet Motley Fool standards when it comes to establishing a thesis for investment.
For instance, let’s take “Bombardier has a history of innovation in the transportation industry.” Fair enough. But at what cost? The company’s existence — at least since as I’ve known it over the past 20 years or so — has largely been propped up by the government. This might have as much to do with the entirely one-sided question I asked. But it’s an important consideration as AI tools become increasingly popular. Not only did ChatGPT miss an important fact – no more rail division — but the response is also void of specifics.
The Human Touch
I only asked ChatGPT for one side of the investing case. To get more perspective, we’d have to ask for it.
And here’s where the human brain comes into play with our ability to juggle opposing ideas.
Today’s Bombardier is in the business of manufacturing, selling and servicing private jets. If anything, this is a business that lacks diversification. It’s also highly cyclical, something that isn’t entirely spelled out in ChatGPT’s consideration. (Again, likely because I didn’t ask for it.)
Right now, seemingly, business at Bombardier is good. This will ebb and flow, and generally speaking, the time to buy a cyclical company is when business isn’t good. That’s how you earn the triple that Bombardier’s owners have logged since the middle of 2022.
The other thing about cyclical businesses is that financial risk comes into play. If the cycle turns and their financial house isn’t in order, well, you end up with a situation like Bombardier has found itself many times in the past — recall the aforementioned government propping. Bombardier remains a heavily leveraged company. Coupled with the cyclicality of the business and despite the company’s recent market-pleasing results, Bombardier is unlikely to appear as a recommendation in any of our Motley Fool Canada services any time soon.
The Foolish Bottom Line
Like any tool, ChatGPT can be of use to help solve problems. But so far, it’s been our experience that the tool misses the mark when it comes to the softer skills required to navigate today’s stock market, which – ahem – I like to think my team and I have in spades. The ability to hold opposing views and evaluate each to arrive at a conclusion remains a task best left to the human brain.
But time-stamp this. It’s probably going to evolve.
Iain Butler is senior advisor at Stock Advisor Canada. He and his team of real human analysts are investors writing for other human investors. Check out Stock Advisor Canada for all of their human-generated stock ideas, which are collectively beating the TSX by 20 percentage points.*
*As of April 24, 2023
