How to Avoid Financial Errors

Last Updated Feb 3, 2011 3:10 PM EST

It's a sad truth that many of the woes investors face in investing are self-inflicted, as we've learned through studying behavioral finance. This week, we'll take a look at some of the most common mistakes investors make.These mistakes are such tragedies not only because of the impact they can have, but also because a small investment in education would prevent them from happening.

First, we'll start by pointing you toward resources that can help you understand how your behaviors influence your investing decisions. If you're interested in learning more, there are several outstanding books you should check out:

The Winner's Curse by Richard Thaler Thaler takes a deep look at some of the irrational economic decisions we make, such as why we wouldn't pay $200 for a ticket to a concert or a sporting event, but we wouldn't sell the same ticket for $400 if we already had it.

Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich Belsky and Gilovich dive into the psychological forces behind the mistakes we make, such as why we're too quick to sell winning assets and too slow to sell losing ones.

Your Money and Your Brain by Jason Zweig Zweig examines the different ways your brain reacts when faced with economic decisions, such as choosing between taking $3,000 guaranteed or gambling on an 80 percent chance of winning $4,000 and a 20 percent chance of winning nothing.

These books were instrumental in prompting me writing Rational Investing in Irrational Times, which looks at 52 mistakes many investors make. (I'm in the process of updating and expanding Rational Investing, and hope to have it out next year.)

Follow the series:
How to Avoid Financial Errors Don't Underperform Your Own Funds Don't Listen to Economic Forecasters Don't Lose Sight of What's Really Important The Greatest Beneficiary of a Passive Investment Strategy? Your Family
More on MoneyWatch:
Are Behavioral Finance Anomalies Exploitable in the Real World? 4 Reasons Investors Avoid Investing Internationally The Black Hole of Investing Why Overconfidence Can Be Bad for You The Smartest Things Ever Said About Market Forecasting
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    Larry Swedroe is director of research for The BAM Alliance. He has authored or co-authored 13 books, including his most recent, Think, Act, and Invest Like Warren Buffett. His opinions and comments expressed on this site are his own and may not accurately reflect those of the firm.