“You have power over your mind - not outside events. Realize this, and you will find strength.” - Marcus Aurelius, Meditations.
By any standards, James Stockdale (23 December 1923 – 5 July 2005) was an extraordinary man, and a true exemplar of the military spirit.
Born and raised in Abingdon, Illinois, he excelled at sports, won a regional piano competition, and graduated second in his high school class. He went on to the Naval Academy during World War II and after graduating in 1946, he reported to Pensacola for flight training.
In 1954, he applied for Test Pilot School at Patuxent River, Maryland. He made the cut along with 17 other pilots, including the future astronaut John Glenn.
In August 1964, his squadron played its part in the Gulf of Tonkin incident, which involved alleged attacks by the North Vietnamese on US naval vessels.
But the events that were to make his reputation began on September 9, 1965. That date would mark Stockdale’s final mission over North Vietnam.
As he approached his target in his A-4 Skyhawk, the plane was peppered with anti-aircraft fire. Within seconds his engine was on fire and he had lost all his hydraulic controls. He “punched out”, breaking a bone in his back in the process, and as he parachuted to earth, watched his plane crash into a rice paddy and explode.
As soon as Stockdale hit the ground, he was seized by a mob, who stripped him and beat him. After suffering a broken leg and a paralysed arm, he was taken by Vietnamese military police.
His ultimate destination: Hoa Lo Prison, otherwise known as the “Hanoi Hilton”.
Stockdale would spend the next seven years in conditions of unspeakable brutality. He would be physically tortured over a dozen times, and beaten, whipped and almost suffocated on numerous occasions.
But the mental torture never stopped.
He would be kept in solitary confinement, in total darkness, for four years. He would be kept in heavy leg-irons for two years, malnourished because of a starvation diet, denied medical care, deprived even of letters from home.
Throughout it all, Stockdale was stoic.
When told he would be paraded in front of foreign journalists, he vowed not to be exploited for the purposes of public relations. He slashed his own scalp with a razor and beat himself in the face repeatedly with a wooden stool so that he would be unrecognisable and useless to the enemy’s press. When he discovered that his fellow prisoners were being tortured to death, he slashed his wrists to show his torturers that he would not submit to them.
When his guards finally realised that he would die before cooperating, they relented. The torture of American prisoners ended, and the treatment of all American prisoners of war improved.
After he was finally released in 1973, James Stockdale was awarded the Medal of Honour. He was one of the most decorated officers in US naval history, with 26 personal combat decorations, including four Silver Stars.
Jim Collins, who wrote the influential study of successful US businesses, Good to Great, interviewed Stockdale during his research for the book. He had read Stockdale’s autobiography, In Love and War, and wanted to know how he had found the courage to survive those dark years in a Vietnamese prison.
“I never lost faith in the end of the story,” replied Stockdale, “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 moment of my life, which in retrospect, I would not trade.”
Collins was silent for a few minutes. As they walked together, Stockdale was limping and swinging his stiff leg that had never properly recovered from repeated torture. Finally, Collins plucked up the courage to ask another question.
“Who didn’t make it out ?”
“Oh, that’s easy,” replied Stockdale. “The optimists.”
Collins was confused.
“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.”
As the two men walked slowly onward, Stockdale turned to Collins:
“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 Collins’ book came to be published, this observation came to be known as “the Stockdale Paradox”. For Collins, it was exactly the same sort of behaviour displayed by those company founders who had led their businesses through thick and thin to achieve longstanding outperformance, compared with also-ran companies that enjoyed average returns at best, or that failed completely.
There is much to appreciate from the story of Admiral Stockdale, but one is drawn in particular to that chilling quote: “Who didn’t make it out? …The optimists.”
Consider the road we’ve been down this past year, as investors – and as human beings.
Western governments have essentially gone to war with their own populations and initiated a controlled demolition of their own economies and monetary systems. This correspondent started to question the (monolithic) mainstream media narrative over Covid-19 as a result of three particular free spirits: Michael Senger; Dr Mike Yeadon; and Nick Hudson. Other narrative-challengers worthy of mention in dispatches are Chris MacIntosh and Francis Hunt.
But we are where we are, and we must play the hand we’ve been dealt.
Analyst Doug Noland keeps a regular diary on the monetary insanity of our times:
“Melt-up,” indeed. It all reeks of a historic market topping process. A tightening of conditions throughout speculative finance has commenced. Global bond yields have been rising. China has begun a tightening cycle fraught with extreme risk. Vulnerable emerging markets have sustained the first round of de-risking/deleveraging. And the global central bank community is facing a confluence of runaway speculative manias and mounting inflationary pressures.
The risk of market liquidity accidents is highly elevated – and rising. Those that dispute this analysis should ponder the scenario where the leveraged speculating community and public race to the exits simultaneously: panicked speculator deleveraging and a run on the ETF complex (kind of like March 2020 but bigger). It’s not farfetched. At this point, with the Bubble inflating so late-cycle crazily, it’s not clear how such a scenario is to be avoided. And while Archegos has started the clock ticking, inebriated markets are hell-bent on Keeping the Dance Party Rolling.
We reiterate our own thesis: inflationary risks vastly outweigh deflationary ones. Grossly indebted governments have every incentive to ‘reset’ their liabilities through inflation. The only logical response is to hedge your portfolio by way of well run, unindebted, highly cash-generative businesses, and other sensibly priced real assets. There is also the ongoing requirement to channel your inner Stoic on behalf of yourself, your families and loved ones.
Marcus Aurelius again:
“Waste no more time arguing about what a good man should be. Be one.”
Tim Price is co-manager of the VT Price Value Portfolio and author of ‘Investing through the Looking Glass: a rational guide to irrational financial markets’. You can access a full archive of these weekly investment commentaries here. You can listen to our regular ‘State of the Markets’ podcasts, with Paul Rodriguez of ThinkTrading.com, here. Email us: firstname.lastname@example.org.
Price Value Partners manage investment portfolios for private clients. We also manage the VT Price Value Portfolio, an unconstrained global fund investing in Benjamin Graham-style value stocks and specialist managed funds.
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