Investing Mistakes: Why Our Minds Get in Our Own Way

I should know better.

And yet, I even catch myself making investing mistakes sometimes.

Someone talks about a stock or an ETF that is doing well right now or supposedly has a lot of potential, and suddenly I think: Shouldn't I get in on that after all?

When the war with Iran began [add month and year] and everything was red on the markets, I started thinking about hedging part of my investments. No sooner said than done: I placed stop orders, and some of them were triggered. For many of those stocks, I never found the right moment to get back in and, looking back, I left gains on the table. Hindsight is always 20/20.

Does this sound familiar? Thoughts like "Maybe selling (or buying) now wouldn't be such a bad idea?" Or you see a position deep in the red in your portfolio and think: "I'll hold on to that a bit longer. It will surely come back."

When it comes to investing, our own behaviour is often a bigger challenge than knowledge about stocks, ETFs or economic relationships.

This is exactly what behavioural finance deals with. Some of the research I have read on how strongly our behaviour can affect results I find really fascinating, and it might help you avoid these investing mistakes in the future too.

What is behavioural finance?

Behavioral finance examines how we actually make financial decisions, rather than how we theoretically should make them.

Classical finance theory long assumed that investors act rationally: we weigh all the information, know our risks and decide logically.

Reality looks different. We are guided by emotions, headlines and past experiences, often even when these have little to do with the decision at hand.

The research field was shaped, among others, by the psychologists Daniel Kahneman and Amos Tversky. One of their best-known findings: a loss hurts us about twice as much as an equal gain pleases us. Kahneman received the Nobel Prize in Economics for this work in 2002, and Richard Thaler followed in 2017 for his contributions in this area.

The interesting part: these thinking traps have little to do with a lack of knowledge. They happen to beginners just as much as to professionals. We can't switch them off. But if we know them, we recognise them faster, before they cost us returns.

Missing the 10 best market days: what does it cost?

A situation many of you probably know: the market falls and we consider getting out and coming back in once everything has calmed down.

Sounds reasonable. In practice, it is quite difficult.

A J.P. Morgan Asset Management analysis shows how big the difference can be. Over the 20-year period examined [add exact period and index], an investor who stayed fully invested achieved an annualised return of 10.5%. An investor who missed just the ten best trading days was left with 6.2%.

That is a return difference of 4.3 percentage points, caused by only 10 missed trading days.

The challenge: good and bad trading days can lie very close together. Anyone who exits after heavy losses therefore risks missing even a quick recovery. That is exactly what happened to me with my triggered stop orders.

For me, the takeaway is simple: if you invest for the long term, short-term fluctuations alone should rarely be a reason to change your investment strategy. That doesn't mean you should never sell anything.

Overtrading: why more activity can lower your returns

Many of us are used to this: if we want to improve something, we have to do something about it.

More exercise. More learning. More practice...

On the stock market, however, more activity can have the opposite effect.

In their 2000 study "Trading Is Hazardous to Your Wealth", Brad Barber and Terrance Odean examined the accounts of 66,465 US households. The investors who traded the most achieved an annual return of 11.4%. The market achieved 17.9% over the same period.

Of course, one study doesn't mean that every trade is bad, or that this is always the case. So before you trade, it helps to ask yourself:

• Am I trading because I want to consciously seize a short-term opportunity?
• Has something actually changed about my investment?
• Or do I simply feel I have to do something?

Overconfidence in investing: a costly bias

Why do some investors trade so much? One possible explanation is overconfidence, another costly investing mistake.

Anyone who believes they can assess the market better than others trades more often. And that can get expensive.

In another study, "Boys Will Be Boys", Barber and Odean examined around 35,000 households and compared the behaviour of men and women. Men traded 45% more than women. Frequent trading reduced their annual return by 2.65 percentage points, while for women it was 1.72 percentage points.

Does that mean women are the better investors? Not necessarily. Women also lost returns through too much activity. Above all, the study shows that the more self-confident we are, the more likely we are to intervene, and the more it costs us.

For me, this is a good reminder to question my own convictions critically from time to time, especially when I feel particularly sure.

Chasing past performance: does it really cost returns?

A stock, a fund or an investment theme performs brilliantly and suddenly everyone wants in. The better past performance looks, the more attractive the investment seems.

In its "Mind the Gap" study, Morningstar has for years examined the difference between fund returns and the return investors achieve with their actually invested dollars.

In the 2025 report, the average fund return over the ten-year period examined was 8.2% per year. The average invested dollar achieved 7.0%. That is a gap of 1.2 percentage points per year.

This was interpreted to mean that investors give away a considerable part of their potential return through poor timing and by chasing past returns. But that interpretation is now being questioned by a new study published in the Financial Analysts Journal in 2026.

The researchers examined Morningstar's methodology and reached a different result: a large part of the measured "return gap" could come from the calculation method rather than from poor timing. They estimated the annual negative timing effect at 0.1 percentage points instead of 1.2.

That doesn't mean timing plays no role. The researchers also point out that individual investors or individual funds can certainly suffer larger timing losses. How much that is will probably become clear in further studies.

Since nobody has a crystal ball, historical data remains an important part of our decision-making. But instead of simply chasing yesterday's winner, I find two other questions more useful:

• Why do I want to own this investment today?
• What future potential do I see?

The disposition effect: why we sell winners and hold losers

Imagine you have two stocks in your portfolio. One is clearly in the green, the other deep in the red.

Which would you rather sell?

Terrance Odean examined this behaviour in his 1998 study "Are Investors Reluctant to Realize Their Losses?" (published in the Journal of Finance). Winners were sold in 14.8% of the corresponding opportunities, losers in only 9.8%. That means winners were sold around 50% more often than losers.

This behaviour is called the disposition effect.

We like to wait because realising a gain feels good and triggers positive emotions. Realising a loss means admitting to yourself: this didn't go the way I had hoped. And hope dies last.

Since waiting also has a price, these questions can help reduce the disposition effect:

• Do I still see enough potential in this investment today?
• If not, is there something more interesting I could invest my money in?

[Image: disposition effect chart. Use a descriptive filename such as disposition-effect-winners-losers.png]

Do professional fund managers beat the market?

Even among professional fund managers, it repeatedly turns out how difficult it is to beat the market.

According to the SPIVA U.S. Scorecard, 79% of actively managed US large-cap funds lagged behind the S&P 500 in the year examined [add year].

That doesn't mean you should only invest in broad market indices from now on. Active strategies can have their place. If you add an active fund to your portfolio, check where the added value lies, how it is created and what costs are involved.

If you want to go deeper on picking individual stocks, our course So funktioniert die Börse: Wie du mit Einzelaktien anlegst (in German) covers what to watch out for. For a broader look at making better money choices, see our guide on financial decisions made easy (in German).

Investing checklist: 30 seconds before you buy or sell

For me, this data shows above all that successful investing needs more than a good choice of investments and a well-thought-out strategy. It also takes discipline and a sound way of making decisions.

Here is a short checklist before you press the button:

• Can I explain in one sentence why I want to buy or sell?
• Do I know my possible gain and loss, at least as an estimate?
• Do I have a clear time horizon for this investment?
• Does the investment (still) fit into my overall portfolio?
• Would I decide the same way without FOMO or headlines?
• Has my assessment of this investment really changed?
• Do I need to do anything at all?

Sometimes the best investment decision is to do nothing.

In theory, it all sounds great. In practice, as you can see above, there are plenty of examples where I fell into the activity trap myself despite the checklist. Maybe that is just part of it. 😉

Frequently asked questions about investing mistakes

1. What is behavioural finance? Behavioural finance studies how emotions, biases and past experiences shape financial decisions, rather than how we theoretically should decide.
2. What is the disposition effect? It is the tendency to sell winning investments too early and hold losing ones too long, because realising a gain feels good and realising a loss feels bad.
3. Does missing the best market days really hurt returns? According to a J.P. Morgan analysis, missing just the 10 best days over 20 years cut the annualised return from 10.5% to 6.2%.
4. How can I avoid investing mistakes? Define your time horizon, be able to explain each trade in one sentence, and ask whether anything has really changed before you act.

How about you? Which investing mistake have you caught yourself making? Tell us in the comments