Investment Strategy in the LLM Era

Extended language models are increasingly becoming part of our everyday lives. Their use is gradually becoming natural, and they are being tested in an ever-growing number of fields.

Of course, such experiments are only worthwhile if we examine the results and draw the appropriate conclusions.

But it is not enough simply to line up those conclusions. We may also need to change our behaviour, and even some of our learned patterns, so that we do not become trapped by the technology.

Not long ago, I read an article on the Holdblog’s own website in which the author asked when an LLM might take over the work of an analyst (the author used the term AI, but I believe the term LLM is more accurate; I wrote about this here).

Holdblog is the professional publication of HOLD Alapkezelő Zrt., an independent Hungarian-owned investment fund manager established in 1997.

The article prompted me to consider the opportunities and potential pitfalls arising from the use of LLMs from the perspective of a small investor.

Older films still show stockbrokers closing deals while shouting across the trading floor, wearing differently coloured jackets and using seemingly magical hand signals.

Then came information technology, with huge screens, charts, and the comparison of information arriving through different channels.

But even then, people remained at the centre of the process. Intuition, stamina and the ability to withstand stress were decisive factors in the outcome.

The nature of stock-market trading has since changed. Today, we can even initiate transactions from our mobile phones.

We can now process huge amounts of information ourselves with the help of LLM systems, and we might therefore think that we are capable of performing the tasks of a professional fund manager ourselves.

But this is not the case. Our success as investors does not depend primarily on our use of modern systems, but, interestingly enough, on our own behaviour as investors.

Those who want to trade on a daily basis from their mobile phones would, in my view, be better off entrusting their capital to a professional fund manager, where trading is carried out according to defined investment profiles and large amounts of daily information can be processed.

Unfortunately, no one is capable of limiting their personal exposure to the changes in their own wealth to a level that is always emotionally bearable.

Sometime in the late 1980s, I read André Kostolány’s thoughts on the rules that small investors should follow.

André Kostolány (1906–1999) was a Hungarian-born, internationally renowned stock-market speculator, investor and financial writer who passed on his decades of experience through his books and lectures, particularly his views on stock-market psychology, patience and long-term investing.

The most important point is that, even though the ability to process information quickly and comprehensively is no longer the exclusive privilege of large companies, we are not playing in the major leagues. We have not suddenly become professional investment funds.

At the same time, we can have advantages at our own level.

We do not have to perform every day, which means that we do not have to pay attention to the noise of the market.

We do not necessarily have to react to everything. Our strongest weapon is not speed, but our ability to wait.

As small investors, it is worth thinking at least in the medium term and learning to tolerate the daily flow of news with patience. Sometimes it is enough simply to wait for a story to unfold.

For example, anyone who sold their MOL shares following the news that the company might be transformed into a holding company would not have captured the almost immediate premium that emerged following the news of the potential acquisition of a European oil company. Those who sold were not necessarily losing faith in MOL itself, but rather saw a risk in a market environment that might also have made it possible for valuable companies organised under the holding structure to be sold.

There may have been a rational reason for the decision at the moment of the sale. In retrospect, however, it became clear that uncertainty did not necessarily mean that the investment story had come to an end.

But let us return to the use of LLMs. I have already written about the proper use of LLMs in an earlier article, where I explained that their critical analytical functions are perhaps the most useful.

We should not expect them to make decisions for us, but rather entrust them with the preparation of those decisions.

Do not ask: What should I buy? Ask instead: What argues against carrying out the given transaction, and what argues against leaving it aside?

We can have complex business analyses carried out for us, but as private individuals we will almost certainly fall into the trap of “too much information.”

Returning to the original question of what LLM technology is capable of, my answer remains the same: it makes our work easier in almost every field, provided we know what we want to use it for and how we want to use it.

Let us regard it as a tool, and remember: you don’t drive a nail with a shovel.

In the meantime, here is a thought attributed to A. Kostolány for both small and large investors:

In the short term, the stock market is the transfer of money from the impatient to the patient.

This article does not constitute investment advice. Its purpose is to explore a theory, not to encourage anyone to initiate stock-market transactions based on these ideas.

By: Viktor Szentkiralyi