20 Growth Stocks for the next 20 years?
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Trying to find the next high growth stocks for the next twenty years is as challenging as it gets, but in this video we ask the most advanced Artificial Intelligence model; Chat GPT 4, to do just that. An intelligence with no emotion, no bias, working with quantitative data only. We also look at the performance of a portfolio selected by Chat GPT 20 years ago, thereby offering merit to the potential future performance. Before we get into the detail can I ask you to consider hitting the like button or perhaps subscribing if you do find value, it really helps the channel.
The first thing we needed to do was to educate Chat GPT for the type of stocks we are looking for, for example, I asked for a list of the most notable high growth stocks from the last twenty years, and this is the response. Chat GPT gave the 20 top performing stocks ranked by their approximate growth percentages. Most of the popular names were included as we would have expected, including Apple, Amazon, Netflix, Tesla, Google and so on. We put these names into our back test software to look at the equity curve and overall portfolio performance.
Clearly this first portfolio was created with hindsight and the returns should look spectacular, but remember this is just the first step in priming Chat GPT for the type of stock we are looking for in the future.
We can see that a $100,000 account split into 5% against each stock, would have turned into over 19 million dollars during the 20 year back test. The annual and monthly performance can be seen here for those who want to pause the video.
What I also thought interesting for those who watched my previous video on the 10 and 20 week EMA crossover, is that the result would have remained solid by applying the indicator. For example if the s&p 500 saw the 10 ema cross below the 20 ema, we would have exited all positions until we saw the cross back up, this would have resulted in an improved drawdown of 24% in comparison to the 58% from buy and hold, yet still growing 100,000 into over 10 million. Anyway, lets get back to the purpose of the video…
We continued to probe Chat GPT into the reasons as to why those companies did so well over the last 20 years, here was the response. They had a strong market position in a growing industry, a history of revenue and earnings growth, a scalable business model, a strong balance sheet, manageable debt, and a capable visionary management team. With these factors in mind, we preceded to ask Chat GPT which stocks would have been chosen 20 years ago based on those characteristics, and without any hindsight bias. The stocks that would have been chosen 20 years ago were provided.
Four of the stocks chosen made it into the previous list of best performing over the following twenty years, but let’s look at how the overall portfolio performed.
We can see that without any prior knowledge of future growth, Chat GPT selected a portfolio of 20 stocks which returned almost 5000%, with a maximum drawdown of 52%. A breakdown of the results per stock can be seen here, showing Apple making up most gains with a $5000 position size turning into over 3.5 million, not bad at all. What if we again added the 10 and 20 EMA crossover to the back test? Well, we still get a solid return far in excess of the S&P index, but we also get a lower drawdown, almost 20% less than the 20 year buy and hold. In fact, if we breakdown the performance, we can see that the 2008 crash was avoided entirely.
The question is, can Chat GPT pick the next Apple, the next Amazon or even the next Google out of a portfolio of 20 stocks for the future, well, we asked that question too. First let’s recap, Chat GTP analysed the key factors of the best performing stocks of the past, put the same factors onto a portfolio of stocks that would have been selected 20 years ago, whilst again showing solid performance. We now ask for the next best growth stocks for the future, and this is what we got.
The recommendations for the future again included some of the past outperformers, interestingly however Apple was excluded. Keen to know why that was, I asked the question. The response had some key takeaways, in particular other companies may have been chosen due to better growth potential, an emerging sector or rapidly evolving market. It was also noted that Apples capitalisation and maturity may have played a role regarding its growth potential. I also wanted further confirmation as to why the 20 stocks were chosen above all others available, in no more than 100 words. Growth potential, innovation, industries with strong prospects, competitiveness, adaptability and commitment to research and development summarised the reasoning.
I continued further analysis and questioning expecting some form of oversight, portfolio diversification was an obvious query. I found that 75% of the stocks selected were from the technology sector and I wanted to understand the reasoning, Chats response showed solid rationale, sector growth, innovation and scalability amongst the primary reasons, also pointing out its own artificial intelligence advancements.
Let’s dig deeper, one of the quick methods I like to use when analysing a portfolio of stocks is the bubble map, provided by the platform Stockopedia. My preferred measure is Momentum and Quality factors. Quality stocks showing momentum have been shown to outperform in the long term, whereas junk stocks without momentum tend to underperform. Clearly Chat GPT has selected stocks mostly with favourable Quality and momentum factors, apart from Crisp Therapeutics only just staying out of the junk zone.
We can see more information when we add the stocks into a portfolio on Stockopedia. Sorted by market capitalisation we get numerous ranking factors, the most obvious concern would be the low Value ranks, suggesting the companies are expensive, this however is common when looking for high growth stocks where expensive often gets more expensive. One of my favourite metrics is the Piotroski score which broadly looks at fundamental Quality and momentum, and it seems again that most are favourable other than Crisp Therapeutics.
So, what can we take from the video? Well I’m sure we are just scratching the surface in regard to the power of AI, but we can see that by simply asking Chat GPT a series of questions, it can very quickly provide the answers, making investment analysis that bit easier, and who knows, perhaps this portfolio will perform just as well over the next 20 years.
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