What does a farm and the Stock Market have in common? Chicken and pigs. Yes, that’s right. Forget the age-old question “Which came first, the chicken or the egg?”. The new question would be “Are you a chicken, a pig, or neither?”.
The terms chicken and pig are used to describe investors based on their approach in investing and extremities in risk appetite. We’ll show you why.
Risk appetite is the amount and gravity of risk that a person or company is willing to get themselves into in order to meet their goals and objectives. Investments vary when it comes to risk, and as an investor, you must know how these risks affect your expected returns.
Some investors prefer to play it safe, are not fond of taking on risky investments, and always want guaranteed returns – these are the risk-averse. Others are thrilled with the adrenaline rush that comes with uncertainties and are not afraid to take risks – these are the risk-seekers. And somewhere between risk-averse and risk-seekers, there are the risk-neutrals. They generally make calculated investment decisions.
To find out more about risk appetite, read Your Risk Tolerance – Are You Willing to Risk It All?
We’ve all heard that riddle: In a bacon-and-eggs breakfast, what is the difference between a Chicken and a Pig? The answer? The Chicken is involved but the Pig is committed!
In the simplest terms, chicken and pigs represent the extremes of investor risk appetite. Chickens are highly risk-averse and are really afraid to lose any amount. They are driven with so much fear that it sometimes overrides their common sense in making sound investment decisions. That’s why chickens are considered as just “involved” and not fully committed.
Pigs, on the other hand, are extremely high-risk investors. They are tempted by the possibility of a high return, however minimal those chances are. Pigs tend to risk everything without performing checks and balances. That’s why pigs are viewed as highly “committed”.
Being a chicken or a pig has its own pros and cons. However, as an investor, you should learn how to make sound decisions with research and due diligence.