Ditto for stocks. We can all come up with solid reasons to justify snapping up one investment and dumping another. But like car buyers, our decisions are often tinged with emotion.

Consider:
We are what we own: We may not like to admit it. But we view the car we drive, the house we own and the clothes we wear as a statement about who we are.

Investments are no different, argues Meir Statman, a finance professor at Santa Clara University in California. "You can look at any investment and see things that go beyond risk and return," he says.

Getting allocated shares of an initial public offering is a source of pride. Buying a socially responsible mutual fund is a political statement. Investing in a hedge fund means we have joined the club.

"Some shopping habits seem to be ingrained," Mr. Statman says. "Some rich people still shop for bargains, because it is part of their personality. For the same reason, they feel an affinity for value stocks. Meanwhile, buying growth stocks is the equivalent of going to the hottest new restaurant. These are people who happily pay full price to be part of the latest trend."

Many investors aren't content simply to make money. We also want to boast about our victories. That helps explain the popularity of high-octane technology stocks.

With such volatile issues, "you'll have more big winners and big losers, and you can brag about the winners," says Terrance Odean, a finance professor at the University of California at Davis.

Attractive stocks: Just as we might buy a car because an advertisement caught our eye or a neighbor bought the latest model, so we are more likely to purchase stocks that are in the news.

"You only consider buying things that catch your attention," Mr. Odean says. "You don't sit down and look at a list of 6,000 stocks every day and decide which stocks to buy."

Indeed, working with colleague Brad Barber, Mr. Odean found that stocks that move up or down a lot one day tend to have high trading volume the next day, with small investors being net buyers of the stocks involved.

"Many people buy stocks in the news for the same reason that many kids buy Harry Potter books," Mr. Statman says. "Much of the joy is in the sense of community, the opportunity to engage in conversation with people who share our experience."

It isn't over until it's over: While we can buy any stock, we typically sell only stocks that we already own. (This isn't true for short sellers, who sell borrowed shares in a bet that a stock will decline. But most folks don't engage in the risky business of short selling.)

So, when we need cash, how do we decide which of our stocks to unload? We may weigh the investment merits of our various holdings. But emotions also kick in.

"For many people, the desire to postpone regret motivates them to sell their winners and hang on to their losers in the hope of redemption," Mr. Odean says. We don't like to sell losers, because it means admitting we made a mistake and giving up any hope of making back the loss.

Indeed, in a study of discount-brokerage customers, Mr. Odean found that investors were far more likely to sell winning stock positions. Selling a loser, however, is often the smartest strategy, because we can use the loss to reduce our taxes.

Can't bring yourself to part with the old chipped crockery from Grandma? Often, we hang on to investments because we feel the same sort of emotional bond. Maybe we inherited the shares. Maybe it's our employer's stock. Maybe we admire the company. "People become attached to particular stocks as something more than interchangeable dollar bills," Mr. Statman says.

Familiarity breeds contentment: We tend to favor investments we are familiar with, such as local companies, well-known corporations and our employer's stock. For instance, using 1996 shareholder data, Columbia Business School professor Gur Huberman found that, among the Baby Bells, investors were more likely to own shares in their local regional Bell operating company.

Many parents play on this notion of familiarity as they teach their children about investing. We give our kids shares of companies they will recognize and feel an emotional attachment to. Unwittingly, however, we may also be doing this with our own portfolios.

"It's just that the toys of parents are different from the toys of kids," Mr. Statman says. "Disney and McDonald's are for kids. Vanguard index funds are for adults. Kids enjoy Disney parks and get to see Snow White. Adults enjoy owning Vanguard index funds and the feeling of being responsible."