A behavioral finance professor reveals that they sold Nvidia stock before its 28,000% increase, lamenting that they could have bought a "nice house somewhere" with the profits.

To provide his students with practical knowledge, Amos Nadler decided to gain hands-on experience in behavioral finance when he began teaching at the Claremont Colleges. Prior to this, he only owned a few mutual funds and ETFs.

"Nadler, the founder of Prof of Wall Street and a Ph.D. in behavioral finance and neuroeconomics, tells CNBC Make It that he needed to talk about gains and losses. He explains that he needed to put his own money to play and experience these things, and take it out of the lab and the textbooks."

Nvidia is a stock that Nadler owned, which was trading in the low single digits at the time. He owned $800 to $1,000 worth of shares, but sold a significant portion of them prior to 2014 when the shares had turned a substantial profit.

He realized the magnitude of his error only in hindsight, as he had opened his account hoping to make some mistakes that he and his students could learn from.

Since Nadler sold Nvidia shares, his brokerage account reflects the original price he paid for the stock as approximately 48 cents. As of Dec 11's market close, Nvidia shares were trading at $139.31 each. This implies that Nadler missed out on a gain of over 28,000%.

In a conversation with George Dan, behavioral finance expert Nadler stated that the sum of money is sufficient to purchase a luxurious house.

According to Nadler, he was a victim of a typical cognitive bias that led him to sell.

He explains the classic behavioral finance reason, which is risk aversion, as the fear that his soaring stock pick would soon plummet back to Earth.

"He recalls thinking, "I bought Nvidia at a low price, but now it's worth more and I'm scared. I feel risk-averse and want to sell it for cash because I might lose it. I'm done taking risks.""

How to keep cognitive biases from hurting your portfolio

Understanding risk aversion involves considering whether you prefer to have $100 or flip a coin for $200 if heads, or $0 if tails. If heads were worth $300 or $1,000, your position on the spectrum can reveal your risk tolerance level to a financial psychologist.

Nadler explains that everyone has some level of fear of the unknown, and that risk-averse individuals prefer certain outcomes over risky ones. He also notes that investors tend to feel the pain of losses more intensely than the pleasure of gains.

The fear of a winning stock falling back down and erasing gains can lead to feelings of dread. It's better to lock in a win now.

Nadler recalls thinking, "I'm new to this, I just made a significant profit in a short time, and I want to secure it because I'm afraid it may drop again."

The decision of when to sell portfolio winners and when to let them run is challenging for investors, but it shouldn't be based on emotions, Nadler advises.

He says, "It's about the difference between what's going on in my head and what's objectively happening in the world." This usually involves acknowledging and setting aside your emotions, and evaluating whether your investment reasons still hold up, considering the fundamental factors.

If a stock rises, you might feel the impulse to sell due to fear of a potential decline. However, if the company maintains a strong competitive edge, has a robust financial position, and analysts predict that earnings will continue to soar, you may choose to hold on.

"Nadler advises against letting our emotions influence our actions in reality, as it can lead to financial loss."

Or, you know, miss out on some pretty spectacular gains.

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