AI can be a powerful research assistant for investors, but only if you know how to ask the right questions. In this episode, Dan shares the AI prompts he uses to research potential stock investments, analyze companies and dig deeper into fundamentals. From simple questions about what a company actually does to more advanced analysis of financial ratios, earnings trends and discounted cash flow, Dan demonstrates how AI can help investors conduct more thorough research.

Dan also explains one of the biggest dangers of relying on AI for investment research: inaccurate or outdated information. He shares how trial and error led him to refine his prompts to demand current financial data, calculations based on company financial statements and verification of the numbers. The goal isn't to let AI make investment decisions for you. It's to use it as a tool for gathering information, asking better questions and becoming a more informed investor.

Key Topics

  • Using AI as a research tool for finding stock investments
  • Simple prompts for understanding what a company actually does
  • Evaluating whether a company has a competitive moat
  • Analyzing stocks through the perspectives of Warren Buffett and Benjamin Graham
  • Researching P/E, price-to-book, price-to-cash-flow and other financial ratios
  • Comparing GAAP and non-GAAP earnings
  • Evaluating five-year earnings growth and identifying potential red flags
  • Analyzing changes in management guidance and earnings-call sentiment
  • Using AI to perform discounted cash flow analysis
  • Improving AI accuracy by requiring current data, verification and calculations

Key Takeaways

  • Start simple. Asking AI what a company actually does can reveal details about its business model, customers and revenue sources that aren't always obvious from its industry classification or stock symbol.
  • Use AI to explore different investment perspectives. Asking whether a company has a moat or how investors such as Warren Buffett or Benjamin Graham might evaluate it can uncover factors you may not have considered.
  • Don't blindly trust the numbers AI provides. Dan has encountered outdated financial data during his own research, making precision and verification critical when AI is being used for investment analysis.
  • Ask AI to calculate financial ratios rather than simply retrieve them. Using the latest company financial statements and requiring the calculations to be shown makes it easier to understand where the numbers came from and identify potential errors.
  • Compare GAAP and non-GAAP earnings. A significant difference between the two can reveal something about a company's financial performance that deserves further investigation.
  • Look beyond a single quarter. Dan examines earnings growth over five years and treats multiple quarter-over-quarter declines as a reason to investigate more closely rather than an automatic deal breaker.
  • Management guidance matters. Comparing the tone and outlook of the latest earnings call with the previous quarter can provide insight into how management sees the company's future.
  • Discounted cash flow analysis can add another layer to valuation. AI can help calculate a potential share value based on future cash flows, growth assumptions and the company's cost of capital.
  • Tell AI to show its work. Seeing the calculations makes it easier to spot errors while also helping you understand how valuation methods and financial metrics work.
  • Use AI as a tool, not a substitute for due diligence. Dan's approach is essentially “trust but verify”: use AI to accelerate research and deepen your understanding while continuing to scrutinize the information it provides.

Connect

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To learn more about Dan Passarelli, Market Taker Mentoring, and his book Build Consistent Wealth With Options, visit https://markettaker.com.

Disclosure:

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, investors must read Characteristics and Risks of Standardized Options (ODD), which can be found at https://www.theocc.com/company-information/documents-and-archives/options-disclosure-document

Don’t trade with money you are not prepared to lose. Anything discussed on this show is intended to be generalized information and not intended to be a recommendation to buy or sell any security. The host and guests are not familiar with listeners’ specific situations. For trading information relevant to your specific needs, speak with a licensed broker or advisor.  

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