For those who don't know, Admiral James Stockdale was a POW during the Vietnam war; the highest ranked 'guest' in the Hanoi Hilton. He was there for eight years and was tortured more than twenty times.
Many POWs didn't make it but Stockdale and some others did.
Collins asked Stockdale, "Who didn't make it out?"
"Oh, that's easy," he said. "The Optimists."
Collins was confused as he thought Stockdale was an optimist as he had no doubt he would get out of his situation.
Stockdale clarified:
"The optimists. Oh, 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."
"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."
As applied to investors, there are a lot of optimistic investors that don't make it. For example, people who were excited about stocks in the late 1990's were optimistic that stocks will continue to earn 15-20%/year just as it had in the recent past. This was sort of the "we'll be home by Christmas" optimism in Stockdale's story. Maybe it doesn't seem so bad as the market hasn't done much since then, but most likely, these people piled in at the top and then puked out their positions in the following bear market (and most likely didn't get back in).
A very insightful post.
Regards,
Reo
http://brooklyninvestor.blogspot.in/2014/08/good-to-great-stockdale-paradox.html
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