Last year began with widespread pessimism in the marketplace and exchange traded fund (ETF) world, but after a sharp about-face in March, the markets defied the odds and pushed higher. What have we learned from the experience?

The S&P 500 showed a 23.5% gain for the 2009 year, reports Conrad de Aenlle for The New York Times. The rally extended to basically any asset class that carried risk, with corporate bonds seeing the most action – the less creditworthy being the most sought after. Foreign stocks and bonds, more notably in emerging markets, skyrocketed. Commodities also experienced a fast rebound with gold leading the headlines.

Still, many professionals are unsure what this new year will bring, with indicators like consumer spending, home prices and unemployment rates improving, but still quite low. Some believe stocks and bonds are overvalued and due for a decline while others think the economy will justify the high valuations by showing an expansion is in place.

Tom Petruno for The Seattle Times has contemplated the events of yesteryear and he has provided his insights on lessons we should have learned:

  • “Don’t fight the Fed.” The seemingly bottomless bag of tricks the Feds have on hand is enough to forestall basically any type of economic collapse. This time, the  Fed’s intervention was strengthened by a worldwide coordinated effort from other major Central Banks.
  • Emerging markets. Many have talked about the potential of developing economies like China, India and Brazil. The talks were justified. The emerging economies have become creditors, and they have accumulated a lot of wealth to back their growing economies. [Emerging market ETFs rake in the money.]
  • Diversification. Be sure to diversify an investment portfolio with a broad mix of holdings to reduce risk. Broad-based diversification increases the chance that an investor will always have something doing well. [Why diversify?]
  • Be prepared to change strategies. When facts present themselves, investors should take heed of the changes in reality and invest accordingly. This occurred last year when investors switched from less risky assets and gravitated toward those with greater risk.
  • Look forward, not backward. Don’t think about what you’ve lost. Instead, focus on the now and try to make your portfolio meet your long-term timetables.

While you can’t find indications of the future, you can hunt for trends by using moving averages. We use the 200-day moving average strategy. It’s easy to implement and simple to track. Most importantly, it helps remove the emotional aspect from one of the emotional things you can do – ivest. For a more detailed explanation of the strategy and to learn more, take a look at our book: The ETF Trend Following Playbook.

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

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.