What is a ‘Pig’ Investor? Definition, Behavior, and Risks Explained

“Pig” is an old slang term for an investor who is seen as greedy, having forgotten their original investment strategy to focus on securing unrealistic future gains. After experiencing a gain, these investors often have very high expectations about the future prospects of the investment and, therefore, do not sell their position to realize the gain.

Like a pig in the farmyard that overindulges in feed, this type of investor will hold on to an investment even after a substantial movement in the hope that the investment will provide even greater gains.

While “pig” may be seen as a derogatory term, some may hearken to John Maynard Keynes’ notion of “animal spirits”. Animal spirit is a term used by the famous British economist to describe how people arrive at financial decisions, including buying and selling securities, in times of economic stress or uncertainty.

In Keynes’s 1936 publication, The General Theory of Employment, Interest, and Money, he speaks of animal spirits as the human emotions that affect consumer confidence. Today, animal spirits describe the psychological and emotional factors that drive investors to take action when faced with high levels of volatility in the capital markets. The term comes from the Latin spiritus animalis, which means “the breath that awakens the human mind.”

One of the emotional charges that Keynes identified was greed (the other primary driver being fear). A pig is an investor overcome by greed and leads to gluttonous and speculative market behavior that may ultimately result in disaster.

For example, suppose Joe invests in XYZ Corp. because the stock is undervalued. After the stock doubles its price in two months, Joe holds on to the whole investment, hoping that it will double again in the next two months, instead of selling a portion of the investment to realize a gain. Joe is a piggish investor because his greed for huge gains supersedes his original value investment strategy.

Signs of a “pig” investor include holding onto investments for unrealistically long periods, disregarding sound investment strategies, and being overly focused on short-term gains.

Investors can avoid becoming “pigs” by adhering to their original investment strategies, setting realistic expectations, and regularly reviewing their portfolios to ensure they align with their financial goals.

While holding onto investments for longer periods can sometimes result in higher returns, it’s essential for investors to balance patience with sound investment principles and avoid being driven solely by greed.

Emotional intelligence plays a crucial role in investment decisions as it helps investors manage their emotions, such as greed and fear, and make rational decisions based on long-term financial goals rather than short-term impulses.