BOSTON ( TheStreet) -- You'll never read in an analyst's report the most important part of investing: your human instincts.Prudent decision making based on investment fundamentals can be easily undermined by fear, greed or a misunderstanding of risk. Investors can instantly improve performance by casting a critical eye on themselves, a part of investing called behavioral finance. During the fall of 2008, when stock markets were collapsing, many investors exacerbated their problems because of fear. Pulling money out at the bottom and stuffing it in a savings account is a good example of myopic loss aversion. That's when investors are scared by short-term volatility, leading them to avoid risk and, as a result, to miss out on rebounds. Proper asset allocation and risk assessment are key to investing. But so are behavioral traits that produce winning portfolios. Here are the most common mistakes investors make and how to avoid them. Representativeness Investors are quick to label a company's quarterly earnings as having beaten, trailed or met expectations. If a company beats analysts' estimates, more of the same is expected in the future. But many factors affect performance, which can be eroded by market changes or intense competition. Product launches can send signals to investors that aren't necessarily indicative of future performance. Take Palm ( PALM), for instance. When the company rolled out its new smart phones, the Pre and the Pixi, investors piled in on the strength of the operating system and the slickness of the device, assuming the products would be representative of the company's future prospects. But there were several large factors working against Palm. Since last year, Palm's stock has fallen from a high of $18 to $3.77. The phones weren't the whole story, and many investors got burned. The balance sheet, threats from other devices and the subpar Sprint ( S) network were serious barriers. Overconfidence Many investors, even novices, hold their own opinions in high regard, which can lead to problems. Whether they know it or not, investors usually make a confidence interval in their head when determining prospects for an investment. This is basically a range of the expected return on an investment. If an investor expects a stock to return 10% in a given year, he may be 95% confident that the actual return will fall between 2% and 20%. Overconfidence leads to a range of values, an interval, that's too narrow. In reality, the interval that would capture the actual return with 95% confidence would likely be much wider, with values ranging from -7% to 25%.