The (re-) Beginner’s Mind

The effects of COVID and the ensuing response continue to play out in real time and will reverberate for years to come. No one can predict the full extent of COVID’s wrath, and forecasting the totality of the aftermath is impossible. Rather than prognosticate or claim to have answers, our mindset is to continue to ask better questions[1].

To some degree, this is equivalent to asking “Restart” questions akin to re-underwriting our theses. Investors can fall trap to numerous biases; none more perilous than falling in love with your own ideas. Oddly, investors are a rare breed that believe the grass is always greener - on their side. We recognize that we are as fallible as the next. However, the first step to overcoming a bias is to recognize it.

During 2020, we didn’t sell a single share of stock in the portfolio, and we recognize that could reflect a bias toward our holdings. This “confirmation bias” stems from a tendency to seek information that reinforces our thesis, and the bias may have been exacerbated by the effects of COVID-19 on the economy. COVID provided a seismic shift for many industries, meaning businesses we own will compete in a changed landscape – what we call the “COVID Reshuffle”. During such periods, we must persistently search for evidence to understand if the business is in a stronger or weaker position. In other words, we must make sure the grass is growing and green.

We will learn more over the second half of the year. At this point, we have limited data from which to draw conclusions, so we must rely on our gritty mindset to seek out new evidence - both confirming and disconfirming. It isn’t always easy to look at the same holding in a different light, but the passage of time will reveal the effects of the COVID Reshuffle.

The “Restart” approach also applies to new opportunities. Prior to the COVID-induced recession, we were operating in a decade-long economic expansion. During tranquil times, businesses and consumers rarely feel motivated to change behaviors. Therefore, predicting the future based on past business performance won’t suffice. We must evaluate the opportunity ahead and continuously question management decisions, especially given the evolving economic environment and more nimble competition.

For a keen example of a Reshuffle, we recently learned of a private company based in the Midwest, that went from 80 employees pre-pandemic to 300 employees (and growing) during the first half of 2021. Additionally, its revenue from the first 6 months of 2021 nearly matched its full-year 2020 revenue. How did the company grow so fast?

The company leans on the side of change, and COVID accelerated a shift that was already happening. The company provides local, just-in-time, digitally printed t-shirts and hoodies for top retailers and brands. Turmoil in supply chains forced its retail partners to re-evaluate sourcing and inventory management. By leveraging technology to eliminate long-lead supply chains, improve inventory management, and rapidly deliver product to the customer, the company was able to execute for their retail partners and take market share.

At RIG, we applaud the company’s execution and love that they operate Kornit Digital DTG printers, which help clean up the apparel supply chain and make the world greener by reducing water consumption, minimizing harmful chemical usage, and eliminating excess production that leads to waste.

Our internal mantra is to be patient, decisive, and maintain a mind like water. The COVID Reshuffle is a literal re-start and a reminder that bias must be left at the door because the beginner’s mind nurtures curiosity and leads to discovery.

[1]Example of good vs. bad question – Bad – Why am I so burnt out after all of the hardships of the COVID pandemic? Good – How can I recharge so I am ready to take advantage of the reopening?