The Stockdale Paradox

The Stockdale Paradox

April 28, 2020

In the book Good to Great, author Jim Collins coined the term Stockdale Paradox to describe a powerful psychological duality that seems to be shared by many successful business management teams in dealing with adversity. The name refers to Admiral James Stockdale, who was the highest-ranking United States military officer at the “Hanoi Hilton” POW camp during the height of the Vietnam War. He later gained additional fame as Ross Perot’s running mate during the 1992 presidential campaign.

As the book states, Stockdale was “tortured over twenty times during his eight-year imprisonment, and [he] lived out the war without any prisoner’s rights, no set release date, and no certainty as to whether he could even survive to see his family again.” Essentially, he had no control over his extremely difficult situation except for his own emotions and behavior. And yet, he never doubted that he would get out. In fact, he never lost faith that he would prevail in the end. He also instituted rules and methods that would help other people deal with torture and uncertainty. However, during an interview for the book, the author asked, “Who didn’t make it out?” “Oh, that’s easy,” said Stockdale, “The optimists.” Hence the Paradox.

Indeed, the (wide-eyed) optimists were the ones who thought that they would be released soon, or by some certain date. Then that date would come, and they would still be there. They then would anticipate another release date, and then that date would come and go, and so on; until eventually they would give up and perish from a broken heart. As Stockdale is quoted, “This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

Every company that achieves greatness faced significant adversity along the way, too; and in every case, the management teams responded in this kind of paradoxical fashion. On the one hand, they stoically accepted the brutal facts of (their) reality; but on the other hand, they maintained an unwavering faith in the endgame and a commitment to prevail despite the brutal facts. It seems that there are important lessons here for individuals in general and long-term investors in particular. In life, we experience setbacks and disappointments, and sometimes even crushing events such as accidents, disease, and the loss of a loved one—and even financial failure and loss of wealth. What separates people, and their respective outcomes, is how they deal with such inevitable difficulties. The key elements of greatness are deceptively simple and straightforward. Successful leaders (or investors) are able to strip away noise and clutter and focus on the few things that have the greatest impact. They are able to do so because they operate from both sides of the Stockdale Paradox, never letting one side overshadow the other. Additionally, they focus on gaining ground as an important part of dealing with (and overcoming) problems or challenges of all kinds, and this usually requires dogged determination. It also involves discipline (committing to the process), patience (committing to the process one step at a time), and perseverance (committing to the process one step at a time over the long haul). Our investment program is based on these same crucial elements that are necessary for overcoming adversity and achieving long-term success.

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