For anyone who’s spent the last two years watching AI promise to revolutionize everything from radiology to restaurant reviews, here’s a sobering data point from the world of finance: a comprehensive academic study found that large-language-model trading strategies failed to beat the oldest trick in the investing playbook. Just buying and holding.
The research, titled “Can LLM-based Financial Investing Strategies Outperform the Market in Long Run?”, tested AI-driven trading approaches across more than 20 years of market data and over 100 stock symbols. The conclusion was blunt. LLM strategies consistently underperformed a simple buy-and-hold benchmark.
What went wrong with the AI traders
During bullish market phases, the LLM strategies were excessively conservative. They effectively left money on the table by failing to capture the full upside of rising markets.
Then, when markets turned bearish, the models flipped to being overly aggressive. Inadequate risk controls meant they absorbed significant losses precisely when capital preservation mattered most.
