Using AI to Invest is EASY, Actually

AI is taking over investing. 

I think most people probably expected this to happen myself included. But my mind was still blown after going down the rabbit hole reading all the articles from investing firms like BlackRock and Vanguard, the advantages that they get from AI are intimidating. 

At the same time, I’m also hopeful because I think I’m onto something.

Watch the extended version HERE.

From 100 to 15

Sometimes I come across a company that makes me say, “Wow, this is awesome!” But before I invest, I need to figure out if it’s really worth it. 

To do that, I run something called a discounted future free cash flow analysis (fancy words for checking if a company will make enough money in the future). Since this takes a lot of time, I only do it for companies I think are really promising.

Here’s how I narrow things down:

Step 1: Find Trends

1. Look for What’s Popular:

• I go to a website called Exploding Topics.

• It shows me 100 things that are trending and might stay popular for a long time, not just for a week.

2. Use ChatGPT to Spot Patterns:

• I copy the list into ChatGPT and ask:
  “What are the common themes, and what could these trends mean for new products, services, and investments?”

• ChatGPT finds themes like: Technology, Social media, Health, Environmental awareness

Step 2: Focus on What Interests Me

1. Zoom In on AI and Health:

• I ask ChatGPT, “What are the trending products combining AI and health?”

• Example: UltraHuman: A health app using AI and wearable devices to monitor fitness.

2. Find Companies in This Space:

• Next, I ask ChatGPT: “Which publicly traded companies make wearable health tech?”

• It gives me a list of 20 companies.

Step 3: Clean Up the List

Remove Duplicates and Check Availability:

• Some companies, like Garmin and Google, showed up twice.

• I also skip companies I can’t buy in the U.S., like Samsung.

• Final list: 15 companies.

From 15 to 3

Here’s how I use the next tool to pick the strongest companies to invest in:

Step 4: Use a Stock Analysis Tool

1. Find the Right GPT:

• I use a tool called Stock Analysis GPT that can read company financials (like earnings and cash flow reports).

• This tool already knows a lot about companies, so I don’t need to download all the data myself.

2. Rank the Companies:

• I take my list of 15 companies and paste their stock tickers into the tool.

• It ranks them by financial health, showing me which companies are the strongest.

Step 5: Narrow Down the List

1. Top Companies:

• The tool gives me the best companies: Google (Alphabet), Apple, and Garmin are top ranking

2. Focus on Free Cash Flow:

• Instead of just looking at earnings, I check free cash flow. Free cash flow is the money a company has after paying for everything it needs, like bills and upgrades.

• Companies can use this money to: pay off debt, expand their business, and pay dividends to investors

3. Compare Growth and Price:

• I look at: how much their free cash flow has grown over time, and how cheap their stock is compared to their free cash flow.

Step 6: Use StockAnalysis.com

1. Find Free Cash Flow Data:

• I go to StockAnalysis.com to check the free cash flow of these companies.

• Example: Google’s free cash flow in 2018 was $22.8 billion and in 2023 was $69.5 billion. That’s a huge increase!

2. Download the Data:

• I download all the company’s financial info into an Excel file.

• This file includes important details: income (how much they make), cash flow (how much money they actually keep), and ratios (helpful numbers for comparing companies).

From 3 to 1

Let me show you how I use ChatGPT and some cool tools to figure out which company is the best to invest in.

Step 7: Upload Financial Data

1. Use ChatGPT’s Excel AI Tool:

• I found a tool in ChatGPT called Excel AI.

• Always turn on data analysis mode. Without it, the tool can mess up!

2. Make a Chart:

• I asked ChatGPT to: “Plot Google’s free cash flow (the money left after expenses) for the last 5 years. Draw a line of best fit to show how Google’s cash flow is growing. Calculate the Compound Annual Growth Rate (CAGR) or how fast the cash flow is increasing each year.”

• Why Use a Line of Best Fit? Company cash flow can go up and down a lot each year. A line of best fit smooths it out, showing the overall trend.

Step 8: Analyze the Results

1. Google’s Results:

• From 2019 to 2023, Google’s cash flow grew about 22.39% per year.

• That’s amazing compared to the average 10% yearly return of the S&P 500 (a big group of top U.S. stocks).

2. Compare Other Companies:

• I uploaded data for Apple and Garmin and did the same analysis.

• Results: Garmin has 19.45% growth and Apple has 14.03% growth.

Step 9: Look at Price vs. Cash Flow

Compare the Price:

• I checked how “cheap” the companies are by comparing their stock prices to their free cash flow with the prompt: “Make a chart for all three companies showing the price to free cash flow ratio over the last five years”.

• Garmin turned out to be the cheapest option in 2023.

Step 10: The Final Pick

Here’s the breakdown:

• Past Performance: Google grew its free cash flow the most.

• Price: Garmin is the best value for its cash flow.

• Financial Health: Garmin is stable, but Google is stronger overall.

Sometimes, I don’t need to compare companies or follow trends. If I already have a company in mind, I use a tool called the discounted free cash flow model to check if it’s a good time to invest.

If that’s the case, the best tool for the job is the discounted free cash flow model. I have a video on how to use it HERE.

Cheers!