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Investments in the financial markets should be well planned and thought through. But short-term thinking and fear of losses often lead investors to act emotionally or follow trends blindly. To avoid jeopardizing your investment strategy, you should know about the following common investment errors. Int.

Economic theory describes market participants as rational, coolly calculating people 鈥� the so-called homo oeconomicus 鈥� fully informed and always striving to maximize profits.

According to this view, homo oeconomicus only ever pursues economic goals. Such individuals know exactly what economic decisions they can make and what the consequences will be. They possess all the information about the markets and characteristics of all goods.

This generalized theory, however, falls short in the context of financial markets. Private investors in particular are influenced on stock markets by individual motives, attitudes and assessments, as well as by their personal perceptions and how they process information.

In this connection, experts speak of 鈥渂ehavioral finance鈥� 鈥� i.e., behavior-oriented financial market theory 鈥� and stress that these cognitive biases usually occur subconsciously, often resulting in investment errors.

Imagine you are buying a stock that is trending upwards. You feel that your actions are justified. The price keeps going up, putting your investment in the profit zone. At the same time, you ignore the fact that the share may only be benefiting from positive momentum in the stock market.

We like to attribute successes to our own abilities and blame external circumstances for failures. Overestimating our own abilities based on random successes leads us to have excessive confidence in our investments, although our choices are not backed up by sufficient evidence. This overconfidence often exposes us to a higher risk of loss because we place higher bets.

Investors often become emotionally attached to their investments, which can significantly influence their investment decisions.

Let鈥檚 say you feel a strong affinity for a certain car or fashion brand and therefore hold shares in the corresponding company in your securities portfolio. And although financial markets have been on an upward trend for some time, the current price of your shares is far below the entry-level price. The earnings prospects and share price forecasts do not bode well, but you are determined to hold on to the shares.

Why? Because you are emotionally captive, you ignore the potential for loss. Investors should always ask themselves what the best decision for the future is, taking into account the latest information and the investment objective.

Every day we are influenced by the behavior of others. You are standing at the pedestrian crossing and the traffic light is red 鈥� but everyone crosses the street anyway. Will you join the herd?

This herd instinct does not stop at the financial markets. Only a few investors are consciously aware of it.

For example, if the price of a share keeps going up, you want to be a part of it (鈥渇ear of missing out鈥�) and profit from this increase. But you often buy the share at too high a price because you missed the right moment.

It is no different when share prices fall sharply: if general confidence is lost, more and more investors may sell off their shares, often rashly.

Fear of loss or loss aversion is one of the most widespread behavioral patterns among investors, where a loss is weighted more heavily than a gain. This can lead to fear and a desire to sell, even though selling is the wrong choice in terms of your investment strategy and long-term goals.

Loss aversion manifests itself, for example, when investors hold losing securities because they are hoping the price will recover. Only the sale of the securities makes the loss real, and this is exactly what people with loss aversion fear. They avoid selling rather than accepting the loss.

A broadly diversified portfolio can help, because a diversified portfolio greatly reduces risk by spreading it over a large number of shares and companies. It is therefore important to carefully weigh up the opportunities and risks of loss for each investment decision, without letting yourself be guided too strongly by emotions.

The well-known stock market and financial expert Andr茅 Kostolany put it succinctly: 鈥淚 can鈥檛 tell you how to get rich quick. But I can tell you how to get poor quick: namely by trying to get rich quick.鈥�

Investors who frequently achieve their short-term gains often lose sight of their long-term investment goals. The consequence: they increase their investment risks excessively in pursuit of quick gains.

Impatience has another disadvantage: those seeking to get rich quick tend to make poor investment decisions or invest at the wrong time. And the more securities you buy, hold for a short time and sell again, the higher your transaction costs, which reduces your return. You may miss out on higher returns if shares are sold too early.

The first step to a successful approach to investing is awareness of your own thought and behavior patterns 鈥� and an understanding of the most common unconscious investment mistakes.

The best way to make good investment decisions is to have a rational, well-founded and long-term investment strategy that you stick to with discipline. You can stumble across various investor traps as early as when developing your investment strategy. Last but not least, the path to your individual investment strategy is complex. It is precisely for this reason that many private investors trust in recognized investment specialists. They have the specialist know-how, necessary expertise and base their decisions on proven models, analyses and processes.