When he began teaching behavioral finance at the Claremont Colleges, Amos Nadler decided he needed some hands-on experience to discuss with his students. Up until then, he had only owned a handful of mutual funds and ETFs.

"I needed some war stories. I needed to talk about gains and losses," Nadler, the founder of Prof of Wall Street and a Ph.D. in behavioral finance and neuroeconomics, tells CNBC Make It. "I need to put my own money to play and experience these things, and take it out of the lab, take it out of the textbooks."

One stock he added you've likely heard of: Nvidia, which was then trading in the low single digits. Nadler says he owned $800 to $1,000 worth, but sold a big chunk prior to 2014 when the shares he owned had turned what at the time seemed like a big profit.

He had opened his account hoping to make some mistakes that he and his students could learn from. Only in hindsight, however, did he realize the magnitude of this particular error.

Because Nvidia shares have split several times since Nadler sold, his brokerage account now shows the original price he paid for the stock as about 48 cents. As of market close on Dec 11, Nvidia shares were going for $139.31 apiece. That means Nadler missed out on a gain of more than 28,000%.

"That amount of money is enough to buy a nice house somewhere," Nadler said in a discussion with fellow behavioral finance expert George Dan.

Why did he sell? Nadler says he fell prey to a common cognitive bias.

"The classic behavioral finance reason is risk aversion," he says, which manifested as fear that his soaring stock pick would soon plummet back to Earth.

"I bought Nvidia in the low single digits, and now it's gone up to and I'm scared," he remembers thinking. "I feel risk averse, and I'd rather go to cash because I might lose it. I don't want to take the gamble anymore."

How to keep cognitive biases from hurting your portfolio

To understand risk aversion, ask yourself whether you'd rather have $100 or flip a coin — $200 for heads, $0 for tails. What if heads were worth $300? Or $1,000? Where you fall on that spectrum can help a financial psychologist understand what level of risk you're willing to tolerate.

In general, everyone fears the unknown to some degree. "A risk-averse individual prefers a sure bet to a risk," Nadler says. What's more, he says, investors tend to experience the pain of losses more viscerally than the joy of wins.

That can lead to feelings of dread around a winning bet in your portfolio. A stock that has gone up could fall back down and erase your gains, you might think. Better to lock in a win now.

That's what Nadler remembers thinking, anyway. "What was going through my head was, 'Hey, I'm new with this. I just made a significant profit in a very short amount of time. I want to lock it in because I'm feeling afraid it may drop again.'"

Knowing when to sell your portfolio's winners and when to let them run is a difficult decision for any investor, but it shouldn't be an emotional one, Nadler says.

"It's about what's going on in my head versus, objectively, what's happening in the world?" he says. That often means recognizing and tabling your feelings, and examining whether your reasons for holding a particular investment remain compelling, based on the underlying fundamentals.

If a stock shoots up, for instance, you may feel the urge to sell out of fear of a downturn. But if the firm still has a strong competitive advantage, a healthy balance sheet and earnings that analysts expect to continue to skyrocket, you may want to hang on.

"Let's look at reality and not let our own emotional overlay on reality dictate our actions," says Nadler. "Because that's a good recipe to lose a ton of money."

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

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