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Illustration of Synthetic Leverage Credit: Greekshares Leverage is one of the most important concepts in investing. It refers to the use of debt to finance transactions that may not be executed only with one’s own capital. Understanding the implications of leverage is crucial if one wishes to become an intelligent investor. If used well, leverage can increase returns on investment. This is because one can achieve greater absolute returns with more substantial initial capital. But there’s a twist. Formula for Financial Leverage Credit: WallStreet Mojo Suppose that Investor A has $500, which he deploys to buy Company A’s stocks. If, after one year, the shares go up 50%, then his stakes would be worth $750, which translates to a (750-500)/500 = 50% return on equity. Meanwhile, Investor B has $500 and borrows another $500 to buy Company A’s stocks. When the share price rises 50%, Investor B’s stakes would be worth $1,500, $550 of which he will use to pay down the loan. In the end, he gets to keep $1,500 - $550 = $950, which translates to a (950 - 500)/500 = 90% return on equity. However, if things do not go according to plan, using leverage exponentially increases one’s downside. Based on the same example, if Company A’s shares had instead fallen 50%, Investor A (who does not use leverage) would have $250 in the end, whereas after the debt payments Investor B (who uses leverage) would end up with -$50! Note that they both start with the same initial capital ($500). What type of leverage makes sense? In many cases, leverage can be a powerful tool for investors. The most attractive type of leverage is non-recourse, long-term, low-cost debt taken out at fixed rates. This kind of leverage is immune to changes to the macro interest rate environment. Even in the event of default, one cannot be held personally liable. In real estate, for instance, this type of leverage could be a great tool to amplify returns with low risk. If, say, one takes out a $100,000 mortgage loan at a 5% fixed rate for 20 years to buy a commercial property that can generate $75,000 a year in income, then one should be able to comfortably cover both principal and interest, as well as amplify returns. Moreover, in this scenario, the downside is much more predictable and does not change in the short run, unlike with an equity investment. Image Depicting the Impact of Leverage on Profits Credit: Investopedia How much leverage? Thus, the question is not whether to use leverage but rather how much. The bottomline is that any sensible investor would avoid taking on more leverage than he can handle. To keep things realistic, investors should remember that, historically, recessions have happened every 6-7 years on average. During recessions, rentals can drop by 60–70% (temporarily) as demand declines, even for highly desirable apartments. The property's income stream might not be as strong, but if the leverage is not too large, it might still be manageable. Meanwhile, one could get whipped out if the leverage far exceeds equity. When is leverage dangerous? Leverage may not work so well in the stock market, where the investor is taking on both systematic and company risk. In the case of stocks, several forms of leverage – some quite precarious – are available to the investor, such as margin trading and options trading, among others. With margin trading, one needs to pay out of pocket to “cover the margins” if a stock moves in an adverse direction in the short run. When that happens, the broker requests additional funds when the balance in the client's account drops below a set threshold. For instance, suppose the investor purchases a $1,000 security, where he contributes $500 upfront and borrows the remaining $500. If the security price drops to $800 after a month, the loan amount will remain at $500, but the equity would decrease by $200. As a result, the investor must provide an extra $200 to ensure that he can trade again. In some cases, he might even have to sell the security below his purchase price to make cash. This type of action is commonly termed a “margin call,” a source of horror for many investors. Image Depicting Margin Trading Credit: firsttrade.com Leverage could be hidden: More generally, leverage can have dark implications for the economy. After all, the Great Financial Crisis of 2008 was partly caused by risky, unrecognized leverage. When financial institutions carelessly granted leverage to investors who lacked the means to pay back, widespread loan defaults set off ripples that endangered the global financial system. This illustrates how leverage can introduce complexity that may not be completely understood, even by so-called experts. In fact, many financial professionals were oblivious to the impending crisis until it actually occurred. Watch out for asymmetry: Excessive leverage introduces downside asymmetry to your portfolio. As Murphy’s Law states: “Anything that can go wrong will go wrong, and at the worst possible time.” In other words, even events with very small probabilities will occur over a long period of time. Consider driving a supercar on an urban highway at 150 miles per hour. Perhaps the odds of having an accident, with some precautions, are very low – at 0.1%. For the first few times that one goes out for a ride, perhaps it is the case that nothing bad happens. However, if one goes out for such rides a hundred thousand times, an accident is bound to happen. Image Depicting a Car Accident Credit: ClipArtMax The same applies to the stock market, where one always carries some exposure to tail risk like that of covid, although these outcomes may not materialize in the short run. However, if one is investing for the long term, even adverse outcomes with a 0.1% probability of occurring will likely happen at some point. If so, losses from positions that are highly leveraged can become catastrophic for the investor, who may see his holdings completely wiped out. To summarize, the intelligent investor must not only be familiar with the potential benefits of leverage, but also the type of leverage, the amount of leverage, and the asymmetry of leverage. Our recommendation would be to avoid using leverage altogether in public markets, as any large number multiplied by zero is zero, and, as we have discussed, in the long run, given enough leverage you run the risk of multiplying your portfolio by zero. By Siddharth Singhai; Chief Investment Officer Gunn Wanavejkul; Analyst Darpan Saluja; Analyst Disclaimer: This White Paper expresses the views of the author as of the date indicated and such views are subject to change without notice. Ironhold Capital has no duty or obligation to update the information contained herein. Further, Ironhold makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. This White Paper is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Ironhold Capital Fund 1, L.P. (“Ironhold”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

Risk is most frequently referred to as the amount of exposure to the potential of unfavorable outcomes from an investment. Naturally, there is no such thing as a surefire investment in life – Every investment comes with some probability of failure. Even the Treasury Bills are not strictly risk-free. In fact, governments have defaulted on their loans throughout history. For example, when Greece adopted the Euro as its currency in 2008, the government caved under massive economic instability and ultimately failed to pay off its sovereign debt. Is it possible to take no risk? In a nutshell, the key question is not whether an investment involves risk but rather how much. Risk pervades our daily lives – Facing risk is inevitable, but we can come to a better understanding by quantifying it. For example, for a typical individual, the odds of getting struck by lightning is less than one in a million. Meanwhile, the odds of being attacked by a terrorist while out vacationing is 1 in 1.6 million. Even in the face of this, individuals take risks in such basic situations as commuting to work or going to the supermarket, simply because the probabilities, once considered, are small enough to warrant undertaking. It would be misguided to avoid any risk at any cost in one’s financial life. Rather, the intelligent investor seeks opportunities with minimal risk but satisfactory expected returns. Needless to say, intelligent investing involves cultivating a strong familiarity with the concept of probability as well as a realistic recognition of risk. Identifying assets with low downside probabilities accompanied by great upside potential is what intelligent investing is all about. When it comes to investing, any discussion of risk that does not take into account expected returns is incomplete, and vice versa. For example, many believe that investing in treasury bonds is a safe bet as it comes with a 4.1% yield, most often misleadingly invoked in the industry as the “risk-free” rate. However, one can overlook the fact that by investing in treasury bills one is losing money to inflation, which currently stands at over 8.2%. Is volatility risk? Wall Street is obsessed with volatility (the short-term fluctuations in market value of any asset or equity) and often misconstrues volatility as risk, but in reality volatility simply represents an asset's market value around its average return. By extension, the standard deviation, which indicates how closely a stock's price is clustered around the mean or moving average, can be used to gauge volatility. To calculate the standard deviation, one first collects data about the asset’s market value at different points in time. One then calculates the mean or moving average of these values, which is then subtracted off each individual market value. Each result is thereafter squared and comprehensively summed. Now, we have arrived at the total squared difference from the mean from all the observed values. To find the average level of deviation from the mean, the total squared difference is divided by the total number of data points observed and then squared to yield the final standard deviation of the market value. Thus, volatility is not necessarily a risk. It simply represents the fluctuation of stock prices around their mean values. It gives no clue as to the level of exposure the investor has toward unfavorable business outcomes. Simply put, it provides no information about the fundamental value of the business. Higher volatility indicates great upside opportunities, opening the door for investors to buy high-quality assets at low prices. To better explain our reasoning, consider this example: You’re in Manhattan looking to buy a skyscraper worth $500M, rented to tenants with AAA+ ratings. It generates $50M in profits per year, and the rent is growing 8.26% annually, in tandem with inflation. On this particular day, there is news in the market about a new Covid-19 surge, causing the market value of the skyscraper to fall to $250M. News like this changes on a daily basis, which can impact the sentiments of the market. This can lead to extended periods of general optimism or pessimism. However, given that New York is the world’s financial center, where the majority of global financial firms are headquartered, a permanent decline in the demand for office buildings is extremely unlikely and does not affect the underlying fundamental value when one takes the long view. In this scenario, volatility helps us to exploit opportunities like buying a skyscraper that is really worth $500m for $250m. These forces lead to what is called the margin of safety, the difference between the intrinsic value and the market value. Buying things cheap allows one to achieve asymmetric risk and reward in our investments. Ironically, when it comes to value investing, the optimal time for buying is created when the market is perceived as dreary or unattractive. Reckoning with Uncertainty The final key theme revolves around the importance of understanding uncertainty. We should consider the future, broadly defined, as a spectrum of possibilities rather than a single outcome from a given set of potential scenarios. We must be flexible enough to fully encapsulate all the possibilities and define their relative likelihood, instead of focusing simply on the ones that are most likely to occur. Some of the most significant losses in history occurred when investors dismissed seemingly impossible outcomes. Meanwhile, the risk is often confused with uncertainty. Granted, both risk and uncertainty are to be expected from any undertaking; however, risk and uncertainty are not the same things. There could be very high uncertainty but little risk. For example, imagine Company A has a recurring average net income of $200m, but this figure fluctuates unpredictably from year to year. For example, it earned $600m in 2018, $120m in 2019, $200m in 2020, and $80m in 2021. From the analysts’ perspective, there is a lot of uncertainty in the level of net income as the exact figures cannot be predicted on a yearly basis. Suppose the CEO of Company A offers to sell the company for $200m, would it be an attractive buy? Even if the investor cannot identify a consistent pattern in Company A’s net income, buying the company at $200m would surely still be a bargain. In this case, it is said that Company A has a lot of uncertainty from the variation in income, but not as much risk because the business is reasonably expected to generate a minimum of $200m in annual income over the long run. Figure 2: Uncertainty in earnings of Company A To summarize, investments are comparable to other undertakings in life in the sense that they always involve some level of risk. Common experience dictates that to achieve anything one must be willing to take healthy risks and become philosophical about adverse outcomes. The astute investor therefore must not shy away from risk; rather, he is able to see through the noise of the uncertainty to arrive at an approximate risk-return profile of the asset and seize attractive opportunities when the odds are overwhelmingly in his favor. By: Siddharth Singhai Darpan Saluja Gunn Wanavejkul Disclaimer: This White Paper expresses the views of the author as of the date indicated and such views are subject to change without notice. Ironhold Capital has no duty or obligation to update the information contained herein. Further, Ironhold makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. This White Paper is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Ironhold Capital Fund 1, L.P. (“Ironhold”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

In the previous series of whitepapers, we discussed how to survive the bear market through fundamental investing and financial planning. In this whitepaper, we will discuss the enormous challenges cryptocurrency industry faces and whether or not it will be a good investment. Credit: The Motley Fool The idea of a blockchain has significantly challenged the conventional manner of "transaction" since a report written by developer Satoshi Nakamoto was first published. Over the past decade, Blockchain technology extended its application to various sectors. One major application is cryptocurrency transactions. Although cryptocurrencies have gained significant popularity among investors, their classification as an asset is yet to reach a global consensus. Amid a worldwide economic recession, the cryptocurrency industry faces enormous challenges following the plunge in crypto prices. Many investors are confused about crypto and blockchain; a simple analogy could explain this. Think of crypto as your credit or debit card and blockchain as the banking system that allows transactions to happen. Blockchain is a digital payment system that doesn’t rely on banks to validate transactions, making it decentralized. Peer-to-peer technology makes it possible for anybody, anywhere, to send and receive payments. Various Types of Cryptocurrencies Credit: Blockgeni Payments made using cryptocurrencies are digital entries to an online database that records individual transactions. A public ledger keeps track of all bitcoin transactions that involve money transfers. A Blockchain ledger differs from a typical accounting ledger as it is shared and immutable, meaning transactions cannot be hidden or deleted once they have occurred. Over the past few years, crypto has raised controversial debates about whether it is an asset. We believe crypto is not an asset. An asset, in our view, is an entity that generates cash flow. Since crypto cannot generate cash flow, it has no intrinsic value and cannot be valued. If Bitcoin’s intrinsic value cannot be determined, there’s no telling whether it’s worth $1,000 or $1 Million. To learn more about evaluating an assets’ intrinsic value, access our previous white paper here. People have considered Bitcoin to be digital gold, however, we see several differences between crypto and gold. Gold is considered a stable asset and is viewed as a favorable hedge against inflation. Gold is said to protect the owner from inflation as the value of the dollar erodes, the cost of every ounce of gold will rise as a result. This is because that gold has a rarity component to it, as it’s created inside massive stars when they explode into a supernova and are brought to earth from asteroids. This precious metal is hard to extract and impossible to recreate, holding a strong demand and functioning as a good store of value. Bitcoin, on the other hand, is easily accessible and can be duplicated as a unique coin by anybody. Bitcoin has a limited supply because of mining restrictions, but it is not a rare commodity. To meet market needs, people can always design new kinds of coins. In our view, bitcoin is not an asset that can hold value compared to actual asset like gold. Gold Volatility Hedging Against Inflation Credit: Funds Europe According to our CIO Siddharth Singhai, " We don't know what cash flows Bitcoin produces- it is sort of an exotic car, where you think it's worth a lot and it will hold its value because there are only 100s of it. But it might not be the case as it does not produce any cash flow and is not rare, there are many other cryptocurrency and you can create your own cryptocurreny. It is not like gold or like some alien metal that arrived on Earth and is limited where you can’t produce anymore of it. Saying of this, Hedge funds will embrace it as long as it does well" Click here to watch the full video on a seminar about value-investing with students from Western New England University. There are two key defining features of cryptocurrencies that make it difficult for them to be accepted as a currency; the first is their volatility, and the second is their inability to store value. For instance: If you have one bitcoin and it's currently worth $100,000, you can buy a Tesla with it. Cryptocurrency prices are very volatile; you might wake up the next morning to find that the price of bitcoin has fallen significantly to $80,000. Since the value of the currency just dropped by 20%, a business transacting through bitcoin would suffer a significant $20,000 loss in a single day. Therefore, no company will permanently accept cryptocurrency as a currency due to the volatility stated above. Volatility of Bitcoin Over the Past Decade Credit: Bitcoinist Since cryptocurrencies do not produce cash flow and are not a naturally scarce resource like gold, it is difficult to estimate their worth. From a risk-reward investment perspective, we do not consider cryptocurrency a good option to invest in as there is no real way to identify the upside or downside with this investment. We believe the value of most cryptocurrencies will go to zero or some small notional value in the long run. By: Siddharth Singhai, Darpan Saluja, Emily Yang, John Siguencia Disclaimer: This White Paper expresses the views of the author as of the date indicated and such views are subject to change without notice. Ironhold Capital has no duty or obligation to update the information contained herein. Further, Ironhold makes no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss. This White Paper is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Ironhold Capital Fund 1, L.P. (“Ironhold”) believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

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A PREMIER GLOBAL INVESTMENT FIRM Ironhold Capital ​We employ a disciplined investment approach with the aim of delivering strong risk-adjusted returns for our investors across market cycles. Get in Touch Contrarian Mindset We aim to identify and capitalize on low-risk, high-reward asymmetric opportunities that arise due to temporary dislocations in the market, to compound our investors’ wealth safely over time while leveraging tax efficiency. We seek to deploy capital in the highest quality businesses around the globe — businesses that can earn exceptionally high returns on equity over long periods while using modest to no leverage, businesses with sustainable competitive advantages or wide moats. High Quality Assets Long Term Horizon We believe that markets in the short term swing between over-optimism and over-pessimism and that these fluctuations are random and to be ignored. On the other hand, markets are weighing machines — businesses’ market value and fundamental value are the same over the long term. We diversify market risk through global diversification in Global Equities to yield lower than average correlation to the U.S markets. In addition, we apply a proprietary rigorous 4-layer risk management process that prioritizes capital protection over everything else. 4 Layers of Risk Management Shareholder Friendly Management We believe in partnering with a high-quality, ethical management team that not only has a fantastic operational track record but also has skin in the game and the right incentive scheme to ensure optimal alignment between the management and minority shareholders. Ironhold Capital CEO Mr. Paul Gray Speaks at the Family Office Symposium Ironhold Capital hosted its Family Office Conference in Midtown Manhattan, NY, featuring 16 Family offices and advisory firms, representing over $30 Billion in assets. Learn More Hedgeweek Emerging Managers Summit Ironhold Capital CEO Mr. Paul Gray speaks at the Emerging Managers Summit of 2022 hosted by HedgeWeek at the University Club in New York City. Learn More MEDIA SECTION VIDEO Ironhold Capital CIO Siddharth Singhai discusses effects of rate hikes and his favorite sectors on Benzinga TV WHITE PAPER Here Is Why You Shouldn't Sell In May and Go Away WHITE PAPER Don't Miss This Historic Opportunity in the Housing Sector See All Research FEATURED NEWS FORBES FTX Failure Reminds Investors: Crypto Investor Protection Does Not Exist 20 November 2022 BENZINGA EXCLUSIVE: Meta Bear, Meta Bull Go Head-To-Head Over Social Media Stock 2 November 2022 THE EPOCH TIMES Here’s What’s on the Minds of Some of America’s Richest Families 1 November 2022 INSTITUTIONAL INVESTOR Family Offices Get Opportunistic Amid Market Chaos 26 October 2022 See All News History of IronHold Capital The Ironhold Capital Partnership was originally formed to provide exceptional risk-adjusted returns for large institutional and select high-net-worth investors. The Founders of Ironhold Capital set out to satisfy the global investment community’s need for unique opportunities not already exhausted and covered by today’s Wall Street analysts. Leveraging the unique experience of Ironhold Capital’s Chief Investment Officer, Mr. Siddharth Singhai, Ironhold Capital delivers opportunities on a global scale in regions that are often poorly understood and widely overlooked by Wall Street counterparts. Utilizing the proprietary and confidential Global Deep Value (GDV) Investment Strategy, the Ironhold Capital Investment Committee can seize the immense growth potential that exists in today’s emerging markets while harnessing the stability of the United States. Furthermore, as an investment firm, Ironhold Capital strives for excellence by fostering a community that embraces rigorous research and analysis while promoting an environment full of independent thinking, openness, and inclusion. Our Leadership Paul Gray Chief Executive Officer Bio Siddharth Singhai Chief Investment Officer Bio Brokers & Custodian Tax & Accounting Admin Auditor Interactive Brokers LLC , Broker, New York, US ​ First Republic Bank , Custodian, New York, US ​ Kotak Bank , Custodian, Mumbai , India ​ Kotak Securities , Broker, Mumbai, India ​ A Private Organization for Affluent Investors The Iron100 is a private network of prominent high-net worth individuals who mutually collaborate with one another in order to expand business and investment acumen. Learn More CAREERS Ironhold and You Working at Ironhold means becoming part of a collaborative, results-oriented team. Learn More Careers Sign Up to get our Latest Research First Name Last Name Email Code arrow&v Phone Accredited Investor Submit Newsletter

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