Don't Worry--Recessions Can Be Good Time to Invest

Wall Street may fear recessions, but historically they've been a pretty good time to invest.

Take 1990--the last time the New York Giants won the Super Bowl. Oil prices were spiking, the banking system was in turmoil and the economy was heading into a recession.

A short time later, stocks turned around and staged the biggest bull-market run in history.

"There were so many similar circumstances," says Charles Massimo, president of CJM Fiscal Management in Melville, N.Y. "If you look at what happened, that was one of the most robust growths this country has ever seen."

So instead of worrying about a recession, as many investors were on Tuesday, think of it as a potential buying opportunity.

"What people have to realize is that recessions happen--it's part of the economy," Massimo adds. "Recessions are actually somewhat good. You have to have some contraction in a market to be able to go to higher levels. As an investor I use this as an opportunity."

In the 11 recessions since the end of World War II, the market rose seven out of 11 times, with an average gain of 3.0 percent.

The most recent recession--from March to November of 2001--the Standard & Poor's 500 plunged 12.7 percent. But in the three recessions before that, the S&P gained an average of 5 percent.

So where do you invest? Some prefer the old standbys--consumer staples such as tobacco and alcohol--while othes say stick with the blue chips.

"The big guys, the giants," says said Michael Holland, chairman of Holland & Co. "I’m thinking Berkshire Hathaway , Microsoft , GE , these are companies that are taking advantage of the troubles.  The tough guys are going to win -- Darwinian survivors."

Michael Chren, of Allegiant Asset Management, likes Cablevision , which he thinks will be a prime takeover target once Time Warner splits off its cable division, and Sara Lee , which reports earnings Wednesday and is under new leadership.

Many analysts are advising clients to rebalance their portfolios while also seeing potential for gains in the right sectors. Rick Pendergrast, senior analyst at Investors Daily Edge, advises investors to cut back to 50 percent to 60 percent equities.

But he likes tobacco and utilities as well as waste management, a sector he sees as a new recession-proof area due to the focus on environmentally friendly public policy. He backs American Ecology as a strong play in the sector.

Nick Massey, vice president of Householder Group, believes much of the recessionary damage already has been priced into the market. He advocates health care and energy as the top sectors ahead.

As equities have tumbled bond prices have risen sharply, with short-term yields falling below 2 percent to their lowest level in four years. Todd Salamone at Schaeffer Investment Research is looking at Treasurys as well.

"Seeing opportunities on both sides, that's the best way to play it right now," he said.

So while a recession as defined by economists may not have transpired yet, the market is certainly acting like it has, with some holding onto hopes that aggressive rate cutting at the Federal Reserve can be a barrier.

"It's hard for me to envision a bear market being instituted when the Fed is cutting rates," said Vince Farrell, of Scotsman Capital. "But I think we're going to go through a lot of sloppiness before we bottom out."

© 2008 CNBC.com