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Investment Research & Effective AI Prompts
Narrowing the Scope: The Role of Constraints in AI Prompts
Artificial intelligence (AI) prompting is more than just asking questions—it’s about steering the conversation to generate accurate and actionable insights for the task at hand. By crafting thoughtful prompts, you can unlock the full potential of AI, saving time and improving your workflow.
In our previous newsletters, we explored the importance of providing context, assigning roles, and ensuring clarity in creating robust AI prompts. Today, we focus on constraints—the art of narrowing the scope to enhance AI’s effectiveness in delivering precise results.
Defining constraints, such as timeframes or data limits, helps guide AI to concentrate on what truly matters. By setting boundaries, you prevent AI from straying into irrelevant territory, especially when working with large datasets. For example, specifying a timeframe in a financial analysis ensures that the output is tailored to the period of interest, avoiding unnecessary information overload. This precision is critical for generating actionable insights efficiently and effectively.
Examples of Constraints in Action
Here are two examples that illustrate how using well-crafted prompts with constraints can transform vague queries into focused and actionable ones:
Example 1: Identifying ESG-Focused Companies
Ineffective Prompt:
“Identify companies that are doing well in the renewable energy sector.”
Why It’s Ineffective:
This prompt is too vague, lacking details such as company size, geographic scope, or specific metrics. Without these constraints, AI may provide overly broad or irrelevant results, requiring significant time and effort to refine.
Effective Prompt:
“Identify the top five companies within the S&P 500 list with a market cap above $50 billion that meet high Environmental, Social, and Governance (ESG) standards, with a focus on renewable energy investment. Please provide references.”
Why it Works:
This prompt sets clear boundaries by specifying:
Scope: Companies within the S&P 500.
Criteria: Market cap above $50 billion and high ESG standards.
Focus Area: Renewable energy investment.
Actionable Detail: A ranked list of the top five companies.
Supporting Evidence: Requests for references.
By narrowing the scope and defining precise parameters, this prompt ensures AI delivers targeted, high-quality results aligned with your research needs.
Mastering Constraints for Effectice AI Prompts
Example 2: Evaluating Private Equity Deals
Ineffective Prompt:
“Tell me about private equity deals in healthcare.”
Why It’s Ineffective:
This prompt is overly broad and doesn’t specify the type of deals, timeframe, or region of interest. Without clear guidance, the AI may generate an unfocused response filled with irrelevant information.
Effective Prompt:
“Identify three private equity deals in the healthcare sector, completed in the last two years, where the target company had an EBITDA margin above 20%. Limit the analysis to US and Canadian deals only and focus on post-acquisition performance. Please provide references.”
Why it Works:
This prompt is specific and actionable, with clear boundaries:
Focus: Private equity deals in the healthcare sector.
Timeframe: Deals completed in the last two years.
Criteria: Target companies with EBITDA margins above 20%.
Geography: US and Canada.
Specifics: Post-acquisition performance, with references included.
By narrowing the scope and defining clear parameters, this prompt guides AI to deliver relevant, high-quality insights, saving time and ensuring actionable results.
Key Takeaway
Adding constraints to your AI prompts significantly enhances their precision. Constraints like timeframes, geographic focus, or financial metrics help guide AI to deliver relevant and actionable outputs. Without clear boundaries, prompts may produce overly broad or irrelevant results, reducing efficiency. Thoughtful constraints streamline workflows and unlock the full potential of AI, driving more meaningful and impactful outcomes.
Several upcoming events to watch in the markets:
December 24 - 25, 2024 – Christmas Eve and Christmas Day U.S. stock markets will close early at 1 p.m. ET on Christmas Eve, and all major markets will remain closed on Christmas Day in observance of the holiday.
December 30, 2024 – Key U.S. Economic Indicators to Watch (https://www.census.gov/manufacturing/m3/adv/current/index.html) The Chicago Purchasing Managers' Index (PMI) and the Dallas Fed Manufacturing Index are scheduled for release, offering indicators of economic activity in the Midwest and Texas regions, respectively.
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This Week in History:
December 24, 1968: The crew of Apollo 8 entered lunar orbit and transmitted a live broadcast.
December 26, 1991: The Supreme Soviet of the Soviet Union formally dissolved the USSR, marking the end of the Cold War.
December 28, 1945: The International Monetary Fund (IMF) was formally established with the goal of promoting global economic stability and growth.