Numbers over Narrative: What AI can teach us about evidence-based investing

While narratives underpin markets, successful long-term investing relies on data and evidence.

In a professional landscape where artificial intelligence (AI) is being adopted more readily, can we draw any lessons from AI when it comes to how to invest your money?

AI excels at analysing large volumes of data, identifying patterns and applying the findings. Whether it be a quick trivia question on ChatGPT that you can’t quite remember the answer to, a caption you’ve read on social media describing a post; or in a more professional sense, a tool to make workplace processes more efficient,all of these outputs are being driven by available information and data.

These very same principles form the basis for evidence-based investing, grounded in decades of academic research into how markets behave. This approach captures the entire global market, while identifying factors that have historically provided a greater return. It is an approach that Carbon have taken to invest our client’s money, rather than relying on forecasts, timing the market or speculation.

So, what can AI actually teach us about evidence-based investing?

Ultimately, an evidence-based approach is very similar in how AI operates, favouring numbers over narratives: processing the data, using the evidence available and applying a systematic set of rules as a result. For investors, understanding this connection can provide a valuable insight into why evidence-based strategies often outperform traditional active fund management over the long term.

If you were to ask your selected AI tool “What is the best way to invest money long term?”, it will likely point towards a globally diversified, low-cost evidence based investment. A follow up question like “what are the benefits are of evidence-based investing over traditional active management” may reply “Consistently beating the market is extremely difficult. Markets incorporate vast amounts of information quickly, making it challenging for even highly skilled managers to maintain an edge.” or “evidence-based portfolios are generally more systematic and cost-efficient, allowing investors to retain more returns”.

As AI continues to demonstrate the power of data-driven processes, it reinforces a lesson that investment research has been highlighting for decades: when it comes to investing, following the evidence often beats trying to outguess the market.

If you’re considering working with a financial planner, get in touch for a relaxed, no‑obligation conversation about your goals and how we can help. Email Enquiries@carbonfinancial.co.uk or call 0131 220 0000.

The Key Benefits of Evidence-Based Investing

1. Discipline and Consistency

Capturing the market and remaining invested over the long term

Evidence-based investing follows clear, systematic rules. This helps to prevent emotional reactions during periods of market volatility and ensures your portfolio remains aligned with your long-term objectives.

2. Lower Costs

Because this approach avoids frequent trading and expensive research teams trying to outguess the market, costs are typically significantly lower than traditional active funds. Lower costs mean investors keep more of their returns.

3. Diversification

Evidence-based portfolios are broadly diversified across companies, sectors, and global markets. Diversification reduces the risk that any single company or sector will negatively impact the entire portfolio.

4. Grounded in Academic Research

Perhaps most importantly, this approach is built on decades of peer-reviewed financial research rather than short-term market predictions or investment fads.

Ready to talk?

Narratives will always have a place in investing. They help explain behaviour and trends, but successful long-term investing is rarely about finding the most compelling story or that one company to invest in. It is about being disciplined over the long-term grounded in evidence, diversification and cost-efficiency.

As AI becomes a more of a commodity, human traits like empathy, judgement and communication become more of a premium. At Carbon, we marry up systematic investing with a personalised service, building long-term trust with our clients to allow you to reach your goals. If you wish to discuss

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action. Tax and Estate Planning Services are not regulated by the Financial Conduct Authority. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.