James “Jim” Stockdale was a US Navy Vice Admiral that was awarded the Medal of Honor in the Vietnam War.  After his jet was shot down in September of 1965 in Northern Vietnam, Stockdale became a prisoner of war for over seven years.  During his captivity, he was mistreated and tortured to the point of near death several times.  Finally, in February of 1973, Stockdale was released.  Upon returning home to the US, and as a result of his mistreatment, he could not stand upright and could barely walk.  In 1992, Stockdale became Ross Perot’s running mate although they lost their bid for Presidency.  Stockdale eventually succumbed to Alzheimer’s disease in 2005.

Stockdale was tortured dozens of times by his captors, and never had much reason to believe he would survive, let alone return home to see his wife again.  Yet, against all odds, he never lost faith during his ordeal.  “I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.” Stockdale said.

Yet, it’s a bit of a paradox isn’t it?  He never had much reason to believe he’d survive, yet, he never lost faith that he would.  Hence, the Stockdale Paradox coined by Jim Collins, author of Good to Great.  While Stockdale had remarkable faith in the unknowable, he noted that it was always the most optimistic of his prison mates who failed to make it out there alive.  Of his prison mates Stockdale recounted, “They were the ones who said, ‘We’re going to be out by Christmas.’  And Christmas would come, and Christmas would go.  Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go.  And then Thanksgiving, and then it would be Christmas again.  And they died of a broken heart.”

What the optimists failed to do was confront the reality of their situation.  Unfortunately, hope was not a strategy; hoping for the difficulties to go away didn’t work.  This self-delusion may have worked in the short-term, but eventually the ugly reality of their situation became too much, and led them to their demise.  Stockdale purposefully embraced a different mindset: he accepted the reality of his situation.  Thus, Collins developed the Stockdale Paradox and described it like so:

You must retain faith that you will prevail in the end, regardless of the difficulties.

AND at the same time…

You must confront the most brutal facts of your current reality, whatever they might be.

I can hear the proverbial gasp now… “But Tony, I thought your tagline is ‘The Best Is Ahead’.  And all your musings are all about optimism and positivity, what gives?”

To be sure, as I peruse my prior essays, there might be some fodder that would make you believe I’m an baseless optimist.  However, you need not look any further than my 20-year track record of being a Partner in our Wealth Management firm, Hixon Zuercher, to prove that I’ve embraced the Stockdale Paradox each step of the way.  The definition of being a successful business owner is to never lose faith, but to confront reality.  Stewarding clients during the 2008 global financial crisis is a case in point.  The reality was it was brutal, clients were scared…so was I, but I never gave up hope.  We put our heads down and pushed hard and deep into researching the economy, markets and the stocks we owned.  In the end, we (and hence, our clients) prevailed.

And now, here we are again.  2022 has brought us another bear market. Clients are unsettled, and rightly so.  Our team?  Heads down and pushing hard into research ensuring that our clients are positioned well to outlast the onslaught.  Our client service team is fully engaged, making sure all client requests and questions are answered satisfactorily and on time.  We’re retaining faith that the markets and economy will prevail in the end, regardless of the difficulties, while at the same time confronting the brutal facts of a down market, rampant inflation, and lower portfolio values.

This too shall pass.  Slowly, yet surely, the current malaise will transition into a raging bull market.  The disheartening news of the day will be distant memory as we embrace innovation, creativity and solutions.

The Stockdale Paradox.  Easy to understand, hard to live out.  But, like Stockdale, only the patient will survive…