1. Failing to see the big picture. Considering investing decisions in isolation and not including their impact on an entire portfolio was cited as a problem.
Consequence: Investing too much in a single asset class, industry or geographic market because you know a lot about it and are comfortable with such decisions.
2. Using a short-term decision horizon. Ignoring the appropriate goal of long-term wealth accumulation in favor of short-term returns hindered investors.
Consequence: Statistically, losses are more likely in the short run. Because people are twice as sensitive to losses as to gains -- a behavioral phenomenon known as "myopic loss aversion" -- their willingness to take short-term risks is too low and they often make the wrong investment decisions.
3. Buying high and selling low. Investors tend to do what's comfortable amid bullish or bearish market conditions.
Consequence: Buying when markets are high or selling when markets are low is a risky strategy that fails to take advantage of market opportunities. A buy-and-hold strategy is superior.
4. Trading too frequently. Multiple emotional and personality traits produce an irrational bias toward action.
Consequence: Investment costs are higher, and the frequency of other poor decisions is increased.
"This lack of control over our emotions is not an abstract problem," the Barclays study said, and "it can have tangible, detrimental effects on both investor satisfaction and performance."
The report also found substantial improvement in investment decisions as people aged. Older investors were much less likely to trade too often, try to time the market or base investments on short-term considerations.
They were also more satisfied with their financial situation.
Barclays Wealth also found that women are better long-term investors than men, who tend to take more risks and are more likely to favor frequent trading and efforts to time the market.
"Women tend to have lower composure and a greater desire for financial self-control, which is associated with a desire to use self-control strategies," the report said.
"Women are also more likely to believe that these strategies are effective." As a consequence, women tended to trade less and earn higher returns over time.
Barclays Wealth sponsored surveys of more than 2,000 people from 20 countries . These investors may not have known the details of their emotional flaws as documented by behavioral economists. But they were aware that they were prone to bad decisions and were open to getting help.
The report identified seven self-control strategies to help people counter their tendencies to make bad decisions. The use of these strategies was not limited to investments and often included other behaviors, such as big-ticket purchases or dieting and exercise.
http://money.msn.com/investment-advice/7-ways-to-limit-investment-mistakes-usnews.aspx
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