Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific investing advice that will help you develop a successful approach to investing. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away.

Today’s tip: “Investors who are guided by a fixed idea about the future often make the wrong decisions in the present.”

It’s essential to avoid letting an investment opinion turn into a fixed idea about the future. Instead, keep an open mind. Nobody can consistently predict what stocks will do. You should always look on your opinions as tentative and subject to continual review, in light of any new information that comes along.

If you develop a fixed idea about what happens next or in the future, chances are you’ll quit considering new developments or contrasting opinions. You may decide you don’t need any new info, since you already know the answer!

Worse, you may develop an unconscious filtering mechanism. You may zero in and dwell on news and commentary that supports your fixed idea, while disregarding news and commentary that supports other points of view.

Emerging markets in and out of favour

In the 1990s, many investors held on to a fixed idea that emerging-markets stocks in China, India and elsewhere were bound to pay off much better than North American equities. Results of investing based on that fixed idea were generally mediocre while the boom was on. Overall, emerging-market returns provided poor results in light of the risk they exposed you to.

Later foreign investing fell out of favour, with many investors feeling that China and other emerging markets exposed them to a lot of risk. I’d say that’s a healthier, more realistic attitude than the gotta-have-it viewpoint that was common in the early years of enthusiasm for emerging markets.

These markets continue to have more potential than ours, because the people are generally younger, and more of them have the potential to advance into the middle class. For a number of years after the financial crisis that began in 2007, emerging markets still seemed more attractive compared to the U.S., where a number of problems hindered economic growth.

But many markets around the world remain riskier than North American markets because of weaker investor protection laws, language barriers, and less commitment to openness, fairness and other values we consider essential.

Invest in your Financial Future for FREE Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor. Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

The myth of “seven lean years”

Many investors also are drawn in by the fixed idea that at certain times we must face “seven lean years” in the stock market. They think times were “too good” when things were booming. So they think we have to make up for it with a period of weak returns.

Many people were convinced of this in 2009 after suffering through a bear market. But in fact, the S&P 500 was little changed from where it had been 11 years before, and the Toronto index stood where it had been nine years before. If you looked closely, it was more likely that we were emerging from a period of seven lean years, rather than starting out on one.

A fixed idea that emerging markets must prevail could lead many investors to take on an overload of speculative stocks, putting their portfolios in danger of heavy losses. A fixed idea that “seven lean years” are ahead could lead many investors to over-invest in bonds.

In recent years this has meant facing low interest rates and a high risk of inflation, as well as passing up the superior returns available from well-established stocks.

COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members

In your experience, what widely-reported prediction or fixed idea about the future turned out to be most spectacularly wrong? Can you think of one that actually held true? Let us know what you think.