A ChatGPT bot created by a student from Oklahoma outperformed the Russell 2000 in returns

A schoolboy from rural Oklahoma gave ChatGPT the opportunity to manage $100 and outperformed the market in terms of returns by a significant margin. This is reported by Decrypt.

Nathan Smith's experiment began four weeks ago with a simple idea - to give artificial intelligence full control over a portfolio of small-cap stocks and see the results.

The yield was 23.8%, while over the same period, the Russell 2000 and XBI indices rose by 3.9% and 3.5%, respectively.

Comparison of yields. Data: Decrypt.

"I constantly saw ads for AI stock pickers on YouTube: saying, 'our algorithm analyzes all stocks on the NYSE, etc.' I started to dig deeper and was surprised that no one had yet attempted to fully delegate portfolio management to an LLM," Smith said.

The task was simple: to assemble the strongest possible portfolio of American stocks from companies with a market capitalization of less than $300 million. The goal is to maximize returns during the period from June 27 to July 27.

The algorithm was given full autonomy.

"AI controls literally everything. Position sizes, stop losses, etc. — I don’t interfere," noted Smith.

He calculated the risk levels. The Sharpe ratio was 0.9413 — this is a signal of high risk, while the Sortino ratio is 2.0021, indicating good growth potential with limited drawdowns.

One of ChatGPT's successful decisions was the purchase of CADL — the paper provided about 50% of the entire portfolio's profit.

"He sold CADL without hesitation. I think AI correctly understood that in microcaps, profit can vanish in an instant. Not every hedge fund would take such a step," said Smith.

The young man created five main functions:

• manual purchase/sale of new shares;
• portfolio management for tracking trades;
• daily calculation of results via Yahoo Finance;
• generating comparison charts with the S&P 500 index.

"To be honest, everything is quite simple. The system pulls prices through the Yahoo Finance API and analyzes the data using Pandas," he noted.

ChatGPT selects stocks once a week, adhering to the market capitalization limit, while the young man executes the trades and records the results. He plans to extend the experiment until December.

"It seems that I have found my calling in life and I really hope to make it my profession," Smith concluded.

It is worth reminding that in February 2024, institutional investors predicted a more active use of AI in trading.