Buffett exhibits a bit of “Stockdale Paradox”

Markets took yet another tumble today as reports are coming in about AIG’s continued struggles, along with questions about what the government’s nationalization of Citi will mean for the rest of the financial sector. Another contributing factor to the tumble were remarks from this past weekend by Berkshire Hathaway chairman Warren Buffett, “The Sage of Omaha”.

In remarks about this past year, Buffett was quick to admit that the company made major mistakes in buying up shares of ConocoPhillips during oil’s peak prices last year. He then went on to describe that economy “will be in shambles” this year if not longer. (source: Bloomberg.com, Buffett Says Ecomony “In Shambles”, Promises Recovery (March 2, 2009)) Some would wonder why on earth, in this economy and environment, would Buffett want to come out with such gloom and doom.

Thinking upon this, it just illustrated to me why Buffett is without a doubt one of America’s best examples of ethical business leadership. It would have been the easything to do to come out and say, “Hey, things happened, how could we have known, but this year is gonna get better and no more looking back!” or “This year is definitely the year we turn this thing around!”

Instead, Buffett showed signs of what Jim Collins called the “Stockdale Paradox” in his book, Good to Great.  In the book, Collins notes that all good to great companies do two things at once: 1) Retain faith that you will prevail in the end, regardless of the difficulties, and; 2) Confront the most brutal facts of your current reality, whatever they might be.

Coming back to Buffett, while noting that the troubles in the market are horrible and not going anywhere anytime soon, he still came back to the notion that there was good cause for hope on the horizon:

“[T]he economy will be in shambles throughout 2009 – and, for that matter, probably well beyond . . . “

AND

“Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”