The present financial crisis appears so devastating that it’s easy to believe it may never be resolved.

But it is useful to look at past problems and see what lessons can be learnt.

Every financial crisis is different, of course, and the various causes, sizes and durations will differ but there may be insights to help us determine what we should expect this time.

Take the Asian Financial Crisis in 1997 which caused the Thai baht to melt down; the long Japanese crisis which caused the 1990s to be a lost decade for that country; the Swedish banking crisis of the early 1990s; and the British second tier bank crisis in the early 1970s.

In each of these situations the share market was adversely affected and in each scenario, except Japan’s, the market rebounded sharply within a couple of years.

One difference between the Japanese experience and the others was the way the government and financial regulators responded.

In Japan’s case they failed to respond in any meaningful way and eventually moved too slowly to rectify the situation.

In the other instances authorities moved in a timely, dramatic manner.

In each case again except for Japan, share market investors benefitted from taking a long term view – even after massive price falls.

With hindsight we can see some common elements such as a prior boom in asset values and high borrowings to buy into the booming markets.

Each also had a trigger which caused a sudden drop in asset prices, leading to problems and failures in the financial institutions that were providing the credit.

In the aftermath of such collapses, people are understandably wary of making investment decisions and committing further resources. As a consequence they tend to be out of the market at the wrong time.

However the risk premium and expected future return is highest when people are most hesitant.

Even though it is extremely painful to experience a big drop in asset values during a financial crisis, investment fundamentals still apply, now more than ever.

History has taught us that during most periods of financial turmoil, withdrawing funds from equity markets after falls of more than 50 per cent realizes losses that are never likely to be recovered.

Nobody can predict when markets are likely to recover and it is acknowledged that there may be further painful falls before the full impact washes through the system.

Unfortunately this is a risk that investors must bear if they choose to.

In an overwhelming number of cases, investors who hold the line through the difficult times will be rewarded.

You can only expect to earn higher returns if you take higher risks and the current situation is seeing the worst of those risks playing out.

As a result, risk premiums are higher now than they have ever been.

Fortune favours the brave.

Investment decisions should be made on a forward looking basis but past experience can cause emotional scars.

Although it is impossible to predict with accuracy when the market will start to recover, it is necessary to be in the market well before the recovery begins.

The short term lift from any trough is usually extraordinarily high, particularly after such a vicious downturn.