The Stockdale Paradox

What does a marathon runner have in common with a Vietnam prisoner of war?

Why is long-term investing so much better than short-term thinking?

The answer lies in the Stockdale Paradox.

The Stockdale Paradox Explained

Who is Stockdale and what’s his paradox?

James Stockdale was a U.S. Navy aviator, eventually rising to the rank of admiral and even running for U.S. vice president in the 1992 election (on Ross Perot’s ticket).

During the Vietnam War, Stockdale’s fighter was shot down and he spent seven years as a prisoner of war in the infamous “Hanoi Hilton” prison camp.

It was during these challenging seven years that the “Stockdale Paradox” was born. I won’t go into gritty details of Stockdale’s imprisonment, but I think you’ll find it quite eye-opening.

Despite repeated torture over those seven years, Stockdale survived as an unbroken man. He remained a leader to his fellow prisoners. He didn’t give up any vital intelligence information.

How did he do it? Stockdale constantly reminded himself of two vital philosophies. But because these two ideas are somewhat at odds with each other, they’re now known as the Stockdale Paradox:

1. Never lose faith that you will prevail in the end.
2. Maintain the discipline to confront the most brutal facts of current reality.

That’s it. Holding both those thoughts simultaneously is the Stockdale Paradox.

Two Opposing Ideas in the Stockdale Paradox

Part 1 of the Stockdale Paradox is hope. Stockdale felt that if he ever lost the belief that he would eventually be free, then he would lose his purpose and quickly wither.

But hope is different than blind optimism. If Stockdale failed to confront his current situation, then he wouldn’t be able to steel himself against the harsh daily conditions.

That’s why Part 2 of the Stockdale Paradox is realism. For seven years, Stockdale woke up knowing that he might get tortured that day. There’s no sugar-coating that reality. But, in the back of his mind, he maintained faith that he would eventually be free.

Hope vs. realism.

Brass tacks vs. boundless optimism.

It’s one-day-at-a-time vs. 20 years from now.

To consider both circumstances simultaneously? It’s not easy. It’s certainly paradoxical.

For all of Stockdale’s time in Vietnam, this mental paradox allowed him to survive intact.

How Do We Apply the Stockdale Paradox?

The Stockdale paradox is easy to talk about but hard to implement.

It’s easy to say, “I have faith that I will one day be 25 pounds lighter. But today, I gotta do my 1-hour workout.”

Or,

“I have faith I’ll have a wonderful retirement. But right now, I have to accept that my portfolio is down 4% in the last month.”

We all have that internal communications system that convinces us there’s an optimal version of ourselves who achieves every goal and does the tough work to get there.

But let’s be realists. That future optimal version requires day after day after day of hard work.

That’s why the Stockdale paradox encourages us to be strict with ourselves. It’s not easy to keep your optimism up when you’re in pain. It’s vital to never confuse long-term optimism with the current situation.

Stockdale and Personal Finance

When do you want to retire? What do you want out of life? What actions are required for you to get there, and how long will it take?

These questions have answers that could take you 30 years into your future. They involve journeys that won’t end soon. While that makes them almost intangible on one hand, it also means that they’ll be defining moments when you do achieve those goals.

When someone says, “I just assume 10% returns for the next 40 years.”

…that’s the hope!

I get it.

But I want them to also understand the day-to-day, month-to-month choppiness that will actually affect their portfolio. It won’t be easy. They need to be realists, too.

But Our Life is Not a Prison Camp

I’m reminded too of the story of Viktor Frankl. The Austrian psychologist’s experience in a Nazi concentration camp helped him solidify incredible ideas about the human psyche.

Namely, that you can never relinquish your own ability to react to a situation. Even when faced with the ultimate human horrors, you can choose how you react. Frankl observed that those who could locate a sense of purpose – whether in future goals, love for family, spiritual conviction, or personal dignity – were more psychologically resilient.

That rhymes with the Stockdale Paradox.

The stories of Stockdale and Frankl could leave you with a broken heart. But they also remind us of the indomitable human spirit.

You need to be realistic with yourself. Every day.

You also need to believe that, in the long run, you will achieve your goals.

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