This morning at the gym I overheard two financial advisors talking. One of them said, “You make the most during a recession. You just don’t know it.”

He was referring, of course, to the fact that when the market is down investors buy low so they can later sell high. That’s why it’s important to hold a steady course rather than reacting out of fear when things go south.

What’s true for the market at large is true for individual companies as well. Take Diamond Foods, for example. The snack food maker will benefit this year from a bumper crop of walnuts, which is expected to lower wholesale prices. That gives Diamond a couple of options. One is to lower retail prices, a strategy no one could argue with during difficult economic times. Another is to maintain their retail price points and use the extra margin to invest in the future. That’s the path Diamond has chosen.

Not only has the company stepped up its advertising in a bid to drive sales and build brand equity, it has been investing in innovation as well. Even in a commoditized category such as the nut business there are new ideas, as evidenced by the 100 calorie packs Diamond recently rolled out.

The management team at Diamond Foods is “buying low” today with their investments in marketing and new product development. That will give them a stronger platform and more opportunities to “sell high” in the future. Smart.

Take a walk with me through a random sample of news snippets from the last day or two:

“Economists say home prices have farther to fall.”

“Economists say it is too early to suggest that broad improvement is at hand.”

“Economists say the number of service-sector jobs will grow by at least 500 million between 2004 and 2015.”

“Economists say the fiscal-stimulus packages from Washington to Beijing will cushion the downturn but fall short of preventing a world-wide recession.”

“Economists say Americans will remain in a funk until they start seeing fundamental improvements in the economy.”

“Economists say 2 million more jobs could go in the first half of this year.”

“Economists say we’ll hear more about the increasing unemployment rates over the next few months.”

“Economists say we will continue to see sluggish growth.”

It all sounds so official, doesn’t it? And believe me, there are plenty more where those came from. But who, exactly, are these economists? It seems like you can’t throw a rock without hitting an economist these days, and journalists can find one to support just about any point of view they want. It’s worse than “unnamed sources in the administration…”

The next time you read in the newspaper a sentence featuring the words “economists say”, just remember it was these expert prognosticators who–with rare exception–got the last 18 months all wrong.

Yesterday Home Depot announced the shutdown of its 34 EXPO design stores, five Yardbirds home improvement stores and seven HD Bath stores, in a bid to further refocus the company.

Once the fastest-growing retailer in history, Home Depot has fallen on hard times in recent years. The company announced that fiscal 2008 sales results would show an 8 percent decline. In a BusinessWeek.com article about its decision to shutter the EXPO locations, Home Depot management said, “Continuing this business would divert focus and resources from the company’s core ‘orange box’ stores.”

That’s a smart realization, and it has been a long time coming. Frank Blake, Chairman and CEO of Home Depot since 2007, has been hard at work trying to clean up the mess the company found itself in after losing its original focus on well-staffed, well-stocked stores catering to retail do-it-yourself customers. While Home Depot wandered, its most aggressive competitor (Lowe’s) focused on stealing market share.

Home Depot still has a lot going for it, including a strong brand, great real estate and immense market power. And in recent months the company’s management team has appeared to recognize how damaging a loss of focus can be. With the economy still in shambles, the road ahead remains rough–all the more reason why Home Depot’s limited resources should be directed to supporting its core concept. The company may be a fixer-upper, but it still has a lot of potential.

With the Departure of John Thain from Bank of America, now Merrill Lynch’s former no. 1 and no. 2 guys are gone from the merged entity. Word is that the rest of the former Merrill staffers are now left wondering, as the Wall Street Journal put it, about “a rocky integration into a bank that was supposed to offer stability.”

Is anyone surprised? Corporate marriages are never easy, especially when they’re a product of shotgun weddings. In real life, the key to marriage is compatibility, and successful corporate mergers are no different. That’s why so many of them fail. The suitors get romanced by the idea that one plus one will equal three in terms of market opportunity and back office synergy. But Merrill and BofA differ from culture to compensation, and it may turn out that in this case one plus one may not even equal two.

Our research shows that despite outward appearances, companies often don’t get what they want out of acquisitions. They too often fall for the promise of what could be rather than the reality of what is.

THIS JUST IN: Pfizer is considering an acquisition of Wyeth in a $60 billion deal. Both have been struggling with competition, changing industry dynamics and weak new product pipelines (see “What Not To Cut” below). It will be interesting to watch as things develop whether this is a marriage for love or money.

The biggest news coming out of Silicon Valley in recent months is the medical leave of absence Apple’s Steve Jobs is taking from the company. There is a great deal of conjecture about whether he will return in June as promised. Whether he does or not, sooner or later Apple will have to survive and prosper without Jobs. Can it do so?

That depends. Apple’s COO, Tim Cook, has proven himself a capable manager. He led the company in 2004 when Jobs had his bout with pancreatic cancer, and he has overseen Apple’s wildly successful new product expansion. That said, whether Cook steps in as the company’s next CEO or the board brings in an outsider, the question won’t be about capabilities. Apple’s future will be, as its past has been, about vision.

Apple isn’t just a company, it’s a state of mind. It’s a personality. It’s a way of looking at the world that most other companies (chief among them Microsoft) just don’t get. Apple is sometimes criticized, usually underestimated and often misunderstood (one not-so-brilliant analyst recently said Apple should consider offering cheaper products, not understanding how the company’s premium pricing strategy is part and parcel of the brand).

Steve Jobs’ strength is not only his vision, but his ability to rally his troops around it and see it through despite industry naysayers, overpaid analysts and pundits who are convinced the future will simply be an extrapolation of the past. Leaders like him are rare, and rarely can they be grafted in to a company so well-defined. Whether Apple can find one—or already has one waiting in the wings—only time will tell.

Here’s hoping.

Day after day, week after week, and month after month the newspapers have been filled with headlines about companies cutting back. They’re cutting people. They’re cutting wages. They’re cutting their sales forces. They’re cutting advertising. Every company has to do what it has to do to make it through the economic crisis, but forward-thinking leaders know there’s one thing they should protect at all costs: R&D.

Last Thursday, Genentech reported a 47 percent increase in fourth quarter net income on the strength of its cancer and arthritis drugs, which continue to generate significant demand even in a down market. Contrast that with Pfizer, the world’s biggest pharmaceutical company, which recently announced layoffs not only in its sales force but in its research operations as well. Pfizer’s cash cow, Lipitor, is losing its patent protection in 2011, and the company’s $7+ billion R&D budget hasn’t produced any winners to take its place.

Genentech is reaping the benefits of past investments, while Pfizer’s hole is currently coming up dry. But both companies understand the critical role of R&D, the lifeblood of the pharmaceutical industry. So does Intel. CEO Paul Otellini remains committed to the company’s long-term future and will not cut Intel’s R&D budget, even in the face of plunging earnings. “We’ve always believed that the best way to successfully emerge from recessions,” he says, “is with tomorrow’s products, not by standing still with today’s.”

Your company may not be in the research-intensive tech industry, or rely on basic science for new product development. But every enterprise must continually innovate to stay alive (see Circuit City R.I.P. below), and innovation requires investment.

How can the nation’s second largest anything go bankrupt?

Even in the toughest of times there should be room for at least two competitors. Smaller, weaker players tend to be the ones that run out of cash, customers and time, while the biggest companies use the advantages that come with size to ride out the storm. At least that’s how it normally works.

The obvious reason for Circuit City’s demise is the economic tsunami that is swamping every retailer. But it’s not the only reason. Industry leader Best Buy, while also suffering the ill effects of unprecedented market tectonics, is in nowhere near the trouble Circuit City is (or was). As the Wall Street Journal recently reported, “competition from Minnesota upstart Best Buy caught Circuit City flatfooted in the 1990s, and its market share steadily declined.” Best Buy simply outmaneuvered its once-larger competitor, changing the industry’s dynamics by paying hourly wages instead of commission and building larger, better-stocked stores, among other things.

Best Buy’s moves—and Circuit City’s mistakes—put the latter on the ropes well before it was hit by the current crisis. Weak as it was, Circuit City simply couldn’t withstand the most recent, devastating blow.

On Saturday I came across a full-page newspaper ad for Citi that featured, considering the circumstances, an unusual statement at the top: “Providing Stability. Securing the Future.” Clearly, someone in the marketing department is not paying attention.

Perhaps it’s not the marketing department’s fault. After all, Citigroup has been ignoring marketing fundamentals for years. Recently unveiled plans to save the company are based on the same inside-out logic that got it into trouble in the first place. Citi is segregating its most troubled business units into a division called Citi Holdings, while keeping its investment bank, credit card operations, regional bank and private bank together under the resurrected moniker Citicorp. The company’s problem has always been a schizophrenic lack of focus, and it’s hard to see how separating divisions based on performance (rather than market dynamics) will make that any better.

I know Citi is a financial services company, but somebody ought to let the marketers have a turn. Unfortunately, they seem to be relegated to a support role, creating ads like the one in Saturday’s paper. The irony is the company’s continued use of its tagline, “Citi never sleeps.” As Citi management continues to be buffeted by a collapsing business model, that’s probably more true than ever.

The appointment of Carol Bartz as Yahoo’s new CEO has drawn mixed reactions. Some say she is just the type of grown up manager the adrift organization needs to return to smooth sailing. Others say she doesn’t have the experience to lead a company in the cutthroat and rapidly changing Internet industry.

Time will tell, but it looks to me like Ms. Bartz is a good choice, coming as she does from a company (Autodesk) that understands its market, understands its brand, and (through 2008) has achieved five straight years of record financial performance. Ms. Bartz doesn’t strike me as one who would join Yahoo as mere caretaker, and that’s certainly not her charge from the board. She’ll need to stir things up (and possibly sell things off) if she’s going to straighten the company up, and I can’t imagine she has any plans other than that. She has witnessed firsthand what a well-focused organization can achieve.

The brass at Citigroup must have skipped that course in business school. I can’t help but wonder why the highly paid, highly educated, high profile leaders at Citi recognized the folly of the company’s financial supermarket strategy only after they appropriated $45 billion in taxpayer money. For that matter, I wonder why they didn’t see it from the beginning.

Unfortunately, a dizzying loss of focus is all too common in business. When things are good and the economic pie is expanding, companies can often skate by with a flawed strategy. But there’s nothing like tough times to reveal what an organization is really made of. In Citi’s case–despite a $25 billion market cap–not much.

A day after Panasonic announced its decision to focus on the low end of the television market, LG Electronics said its 2009 goal is to increase its flat-panel TV sales by 40%, to 21 million. The company is aiming to improve its category market share by five percentage points. How? By increasing its investments in both R&D and marketing. It’s a smart move.

LG and Panasonic are pursuing two very different strategies to deal with the economic downturn. While Panasonic is following the herd (at its own peril–see below), the approach LG is taking is consistent with what we’ve seen from the most successful corporations we studied. Both companies are pursuing aggressive growth, but while LG is doing so by finding ways to sow more value for the future, Panasonic appears content to reap the value it has sown in the past.

Don’t be surprised if short term results show Panasonic running ahead. But keep in mind that LG may be playing tortoise to Panasonic’s hare.