After a tumultuous year in the market, it’s wise for exchange traded fund (ETF) investors to take a step back and examine what went wrong and what can be done to avoid those same mistakes in the future.

Stock markets around the world have rallied, economies are coming back to life, the credit floodgates are flowing freely, banks are strengthening and consumers are spending again, remarks Ben Stein for Fortune. What have global citizens learned so far?

• Economic forecasting is not omniscience. As the recession got under way, many economists said it wasn’t going to happen or that it would be a mild affair. No one foresaw the deep cutting effects of the recent recession, and some top economists even went so far as to  comment on the likelihood that we could fall into a genuine Depression, with all the accouterments it would entail.
• Financial market forecasting is even poorer. Many people became pessimists and the fast recovery from the March lows was not something many would have believed possible. In fact, some still don’t believe it.
• An awe-inspiring, mendacious financial sector. Banks lied about their risk, exposure, capitalization and ability to stay solvent, and the whole of the financial sector was no different.
• The government is blind. Alan Greenspan, former head of the Federal Reserve, didn’t see the bubble that was forming or the subsequent crash that followed. Ben Bernanke, current head of the Fed, did not see the possibility of a housing bubble or the crash when he was still the chairman of the President’s Council of Economic Advisers.

A good lesson could be had here for investors. Investors who had lots of liquidity, such as cash, Treasury bonds or insured savings, had a less stressful recession than others who had money stashed away in stocks and real estate. Ben suggests investors to keep both stocks and bonds and plenty of liquidity no matter what the occasion. (How to invest in ETFs like a master).

We’ll add that it’s wise to have a trend following discipline. Ours utilizes the 200-day moving average. For more information about discipline, creating a strategy and how a strategy can protect you, read The ETF Trend Following Playbook.

For more information on trend following, visit our trend following category.

Max Chen contributed to this article.

Tags: ETF 101, ETF Book, Financial, Trend Following