Season 2, Episode 3

Host: Matt Hall

(00:06): Welcome to Take the Long View with Matt Hall. This is a podcast to help reframe the way you think about your money, emotion, and time. The goal, helping you take a longer view, putting the odds of longterm success on your side. Today, I want to share a hugely important concept with you for dealing with hard times. It's called the Stockdale Paradox, and I'm going to tell you how it helps us do our work at Hill Investment Group, and what it will do for you right now during this time of isolation. It's an extreme example, and I'm not sharing it to minimize anyone else's problems. I'm sharing the concept because it helped Admiral Jim Stockdale survive as a prisoner of war, and I think there are relevant aspects to his approach that will serve us all well. We've used the principle idea from the Stockdale Paradox since the founding of our firm in 2005, and I have leaned on it both personally and professionally in many examples, including my own experience dealing with cancer, and even when writing my book, Odds On.

(01:15): So who is Stockdale, and where did this idea come from? I'm going to answer these questions in this short but useful episode. And the best way is to read you a powerful section of the classic business book, Good to Great. The book is written by Jim Collins, who you may know, but I'll tell you anyway, is considered one of the top 100 living business minds in the world. That's what Forbes said anyway. And his books have sold more than 10 million copies. Good to Great is, in my opinion, and essential read for aspiring business leaders, and the section I'll share with you now is one of the most valuable of all the concepts. The name refers to Admiral Jim Stockdale, who was the highest ranking US military officer in the Hanoi Hilton prisoner of war camp during the height of the Vietnam war. Tortured over 20 times during his eight year imprisonment from 1965 to 1973, Stockdale lived out the war without any prisoners' rights, no set release date, and no certainty as to whether he would even survive to see his family again.

(02:22): He shouldered the burden of command, doing everything he could to create conditions that would increase the number of prisoners who would survive unbroken, while fighting an internal war against his captors in their attempts to use the prisoners for propaganda. At one point, he beat himself with a stool and cut himself with a razor, deliberately disfiguring himself so that he could not be put on videotape as an example of a well-treated prisoner. He exchanged secret intelligence information with his wife through their letters. Knowing that discovery would mean more torture and perhaps death. He instituted rules that would help people to deal with torture. No one can resist torture indefinitely, so he created a stepwise system. After X minutes, you can say certain things that gave the men milestones to survive toward. He instituted an elaborate internal communication system to reduce the sense of isolation that their captors tried to create, which used a five by five matrix of tap codes for alpha characters. Tap, tap equals letter a. Tap, pause, tap, tap equals letter B, and so on.

(03:26): At one point during an imposed silence, the prisoners mopped and swept the central yard using the code, swish-swashing out, "We love you" to Stockdale on the third anniversary of his being shot down. After his release, Stockdale became the first three-star officer in the history of the Navy to wear both aviator wings and the Congressional Medal of Honor. You can understand, then, my anticipation at the prospect of spending part of an afternoon with Stockdale. One of my students had written his paper on Stockdale, who had happened to be a senior research fellow studying the stoic philosophers at the Hoover Institution right across the street from my office, and Stockdale invited the two of us for lunch. In preparation, I read In Love and War, the book Stockdale and his wife had written in alternating chapters, chronicling their experiences during those eight years. As I moved through the book, I found myself getting depressed. It just seemed so bleak, the uncertainty of his fate, the brutality of his captors, and so forth.

(04:29): And then it dawned on me, here I am sitting in my warm and comfortable office, looking out over the beautiful Stanford campus on a beautiful Saturday afternoon. I'm getting depressed reading this and I know the end of the story. I know that he gets out, reunites with his family, becomes a national hero, and gets to spend the later years of his life studying philosophy on this same beautiful campus. If it feels depressing for me, how on Earth did he deal with it when he was actually there and did not know the end of the story? "I never lost faith in the end of the story," he said, when I asked him. "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." I didn't say anything for many minutes, and we continued the slow walk toward the faculty club, Stockdale limping and swinging his stiff leg that had never fully recovered from repeated torture.

(05:37): Finally, after about a hundred meters of silence, I asked, "Who didn't make it out?" "Oh, that's easy," he said. "The optimists." "The optimists? I don't understand," I said, now completely confused, given what he'd said a hundred meters earlier. "The optimists. Oh, they were the ones who said, we're going to get out Christmas, and then Christmas would come and Christmas would go. Then he'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." Another long pause and more walking. Then he turned to me and said, "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 may be." To this day, I carry a mental image of Stockdale admonishing the optimists. "We're not getting out by Christmas. Deal with it." That conversation with Admiral Stockdale stayed with me, and in fact had a profound influence on my own development.

(06:50): Life is unfair, sometimes to our advantage, sometimes to our disadvantage. We will all experience disappointments and crushing events somewhere along the way, setbacks for which there is no reason, no one to blame. It might be disease, it might be injury, it might be an accident. It might be losing a loved one. It might be getting swept away in a political shakeup. It might be getting shot down over Vietnam and thrown into a POW camp for eight years. What separates people, Stockdale taught me, is not the presence or absence of difficulty, but how they deal with the inevitable difficulties of life. In wrestling with life's challenges, the Stockdale Paradox, you must retain faith that you will prevail in the end, and you must also confront the most brutal facts of your current reality, has proven powerful for coming back from difficulties, not weakened but stronger. Not just for me, but for all those who've learned the lesson and tried to apply it.

(07:52): It reminds me of another military concept, or piece of advice, from Admiral McRaven, who has written a book called Make Your Bed. And in the early part of the book, he talks about how many people come to him to try to figure out tips or tricks to survive Navy SEAL training. And he always tells them the same thing. It's not about more pushups, and it's not about running faster. It's about deciding, I won't quit. What we, in our office, love about the Stockdale Paradox is this idea that the date is uncertain, but the conclusion is known. Just like in the current environment, the date of this quarantine or this experience, though not in any way comparable to being a prisoner of war, in some ways this isolation, it causes a high level of uncertainty. So how do we deal with that? Figuring out how we have faith in the end, while dealing with the reality of today. That's the most important element of the Stockdale Paradox I wanted to share. Retain faith that you will prevail regardless of the difficulties, while every day, being present and confronting the facts, whatever they might be.

(09:10): I hope you find this helpful. Thank you. I'll catch you next time. What are the assumptions you think others have about wealthy people? Please note, the information shared in this podcast is not intended as advice. The intent is to share meaningful experiences. I am likely not your advisor, nor wealth manager, nor financial planner, and my opinions are my own and not necessarily shared by Hill Investment Group. Investing involves risk. Consult a professional before implementing an investment strategy. Thank you.