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How AI Works For centuries, humans and machines have lived in harmony. Dating back to the development of the wheel which revolutionized farming and human mobility to the computers that landed the first human on the moon in 1969. The newest innovation in the technology sector that has sparked the attention of the public is artificial intelligence or AI. Simply stated, AI refers to the simulation or approximation of human intelligence in machines but, it’s also helpful to understand it in the context of an example. Imagine yourself driving down the street in your neighborhood. What do you see? Most likely, there are other cars either parked or moving, children playing, pets or animals roaming around, and miscellaneous objects such as basketball hoops or trash cans. As humans, we are consciously or subconsciously analyzing our surroundings constantly taking stock of the potential situations that might arise. Due to our comprehension of societal values, we can order the importance of all objects on the road and take the necessary actions to maintain safety. Prior to driving, humans have collected an unquantifiable amount of data points that specifically reference the value of all things, but AI doesn’t have that information. Humans can draw from their life experiences and contextualize the importance of people/things on the road. For example, at a young age humans learn it isn’t ok to hit other people but it is ok to bounce a basketball outside. Humans are alive therefore their safety is more important in comparison to a basketball. They then can correlate that information with their knowledge of driving which provides them the ability to maintain safety to their best efforts. AI programs are attempting to correlate this data so that they can make these decisions correctly. In order to do so they must be supplied with large quantities of high-quality data so that the algorithm can train and improve. With more data and experiences the AI program will teach itself and take incremental steps in becoming a more effective driver. How AI Has Impacted the Market The market's current reaction to the developments and prospectus of AI has been overzealous at the least. In the short run, stocks are susceptible to emotional volatility and therefore deviate from a rational evaluation based on the company’s long term cash flows. One organization that has experienced extreme fluctuations from the emotional movements in the market pertaining to AI is, Nvidia. Nvidia produces graphic processing units which are used in PCs, cars, robots, and now AI. Through their newfound association with AI, Nvidia's market value soured by 184 billion dollars on May 25th. This miraculous 24% gain moved their total market value to 938 billion just shy of joining the world’s one-trillion-dollar club. Another company that has fared well for the market's overreaction to the new developments in AI technology is, C3.ai Inc. They boast negative earnings for the past four fiscal years but their stock price has jumped by 214% thus far in 2023. Palantir is a software company that went public in 2020 and still has yet to report a profitable fiscal year. Despite that, its stock price still trades for about 15 dollars and has surged a total of 136% since the start of 2023. Where AI may be worth the hype McKinsey conducted a study with more than 400 use cases of machine and deep learning across 16 industries and nine business functions. With nearly all industries display clear benefits from AI programming. For instance, predictive maintenance, logistic optimization, and customer service are all business functions that could be enhanced through the assistance of AI. Aside from this study, generative AI has also proven itself to have numerous personal and professional utilization. Amongst the most common forms of generative AI is ChatGPT which can generate endless hours of content. ChatGPT can be utilized to perform marketing, sales, operation, IT, engineering, risk, legal and R&D applications. The potential applications for AI seem almost unlimited but predictions rarely unravel perfectly. Industries with large quantities of high-quality secure data can benefit the most from AI technology. E-commerce, Digital Advertising, Insurance, and other Data-heavy industries have the greatest potential benefit from the use of AI. For instance, companies such as Netflix that collect and exclusively own huge amounts of behavioral data could integrate AI and gain a competitive edge. Understanding what people viewed, for how long, and at what time could help Netflix's advertisers better target their customers, Since Netflix exclusively owns all this data - it could be a source of a moat. We believe access to large amounts of high-quality Data is the prerequisite for developing superior Artificial Intelligence. Falls short of expectations The usefulness of AI drastically decreases the larger the role random probability plays in a particular situation. For example sports, the 2023 eastern conference finals showcased the Miami Heat vs. the Boston Celtics. Before the series started ESPN gave the Heat a 3% of advancing to the finals. In game seven Jayson Tatum twisted his ankle in the first quarter and played horribly the rest of the game. Inevitably the Heat won and advanced to the NBA finals. ESPN's sophisticated analytics couldn’t predict that the series would go to seven games and absolutely couldn't foresee Tatum's injury in a pivotal elimination game. Much like sports life is full of curveballs that can’t be predicted, even by AI. Wherever randomness is a major factor - past data becomes less and less important and so does A.I. Additionally, from an investment standpoint, if AI is easily replicated by all, it wouldn’t create a significant difference in the competitive advantage one company has over the other in an industry. The company's intrinsic value would be derived from its future cash flows. The company has to either gain market share or improve its return on capital on assets to improve its long-term cash flows. This improvement would also have to be permanent for AI to affect stock prices meaningfully in the long run. Meaning just because you have good AI now doesn't mean that you deserve a better valuation. Simply, Unless AI can drastically increase the future cash flows of an organization by either cutting costs or growing revenues(capturing market share) there won’t be any clear advantages to the firm for using AI. Conclusion As investors, we should be mindful and cautious of the hype surrounding AI especially when it comes to the evaluation of a business. For many companies, in a number of industries, AI has the potential to significantly improve productivity. However, just because a company uses A.I it doesn't mean that the company now deserves an astronomical valuation. Ultimately for a company to be worth more it has to improve its long-term free cash flows. In cases where the adoption of A.I improve long-term competitive positioning or operating margins it's worth the hype, but in other cases, it's not. It's unlikely that the recent surge in AI stocks is warranted and investors should consider all that has been discussed thus far before they jump on board the AI train. By: Paul Gray; Chief Executive Officer Siddharth Singhai; Chief Investment Officer Charlie Silsby; 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.

The jump-scare by Silicon Valley Bank was not a shock for many, short sellers had been calling out SVB and many other lending institutions for a while, but what actually happened? How Banks Work The business model of banks is very simple. Imagine that you deposited your money in the bank, the bank pays you - the depositor, interest on your money. But the bank needs to make money too, so it deploys the depositors’ money by giving out loans, credit lines and other instruments at a higher rate than what it is paying you and pockets the difference. This is called ‘Net Interest Margin’ or NIM. The bank however, cannot give out all of the depositors’ money, it has to have some liquidity in case of emergencies and withdrawals and the difference between the bank’s assets and liabilities which is the equity, acts as a safety net to fall back on. What Happened at SVB? Silicon Valley Bank had assets totaling $212 Billion while liabilities were at $200 Billion (FY 2022). This means that they had a safety net of about $12 Billion. Out of the $212 Billion in assets, deposits were $173.1 Billion; After the banking crisis in 2008, the FDIC made insuring some of the deposits mandatory, this insurance makes sure that depositors get part of their money back should the bank go under. A meager 11% of the deposits were insured, this is a big red flag, as a depositor you want your money insured and as an investor the insurance acts as a checks and balance metric. Lending Practices & Business Model Investors who were concerned about the equity and bank’s collateral were already cashing out of the bank, SVB had to sell its liquid assets for a loss to cover this up. This leads to the bigger question, how were their collateral assets and what were their lending practices like? More than half of the short term loans were given to Venture Capital and Private Equity endeavors, given the current macro setting, their profitability is questionable. So most investors assumed that the loans were essentially bad, which they were. Why were they bad? Their business model explains it all. SVB issues something called ‘Venture Debt’ which they explain on their website: If you are a company that is raising $10 Million at a $50 Million valuation, giving up 20% equity and you are short $2 Million to the target. Instead of raising the $2 Million from investors for 4% equity, you can borrow the amount as Venture Debt for 0.25% equity in the form of warrants which is less dilutive than the former option. SVB is very proud of their VC lending, they have to be given the statistics.So SVB’s business model is to lend to as many start-ups as possible to breakeven on their losses and then some on that one winning IPO. This is quite literally the modus operandi of Venture Capital firms. But here is the fundamental problem where SVB falls behind even VC firms, at least VC firms get into the deal for equity. When you have equity in a business, if the business goes under or liquidates for profit or is even acquired, you as the equity holder will get your share of the pie, there is some form of recovery. But SVB is praying on warrants, and the warrants are only worth something when the companies go public via an IPO and the stock is trading at a premium to the warrants’ exercise price. It is common knowledge that the ‘Tech Bubble’ had recently burst, companies like Google, Amazon and META were down more than 50%, one can only imagine what happened to ‘Tech’ companies that have never had positive cash flow, and the ‘Healthcare’ (vastly referring to BioTech) side was in even dire straits. In such a market environment, no ‘Tech’ or ‘Healthcare’ company would file for an IPO which renders SVB’s collateral warrants worthless. This aspect should be reason enough to sympathize with both the fleeing depositors and shareholders. Interest Rates The Federal Reserve has been increasing interest rates, while the interest rates before mid 2022 were almost at zero, it was very easy for banks to profit; they were essentially paying nothing to their depositors, while lending out at a better rate which increased their NIM. Since the rates have now increased, the NIM has shrunk meaning the bank’s profitability shrunk. In addition, as of Q4 2022, SVB purchased $82 billion worth of 10-year maturity MBS, which is the major asset SVB holds. The increasing rates at 5.2% conversely decreased the value of long term debt, which in the case of banks, are their assets. Silicon Valley Bank’s financials looked right until one read between the lines and looked for ‘unrealized losses’ of securities ‘held-to-maturity’ (HTM). SVB reported it had unrealized losses of $15.1 Billion, so let’s do some math here, they had equity of $12 Billion, but unrealized losses of about $15.1 Billion, this means that equity had and shareholders have been wiped out. You can refer to our last whitepaper on leverage to get a better understanding of the concept as well as the role it played during 2008. Held-to-maturity accounting itself is not to blame here, the bank bought MBS when interest rates were at all time lows, their average yield was 1.56%, after the rise of interest rates, one could buy securities that yielded 4%-5%, since the current interest rates lead to better yielding securities, the securities with lower yield such as SVB’s MBS’ value on the open market has decreased. The decrease in their value is irrelevant because when held to maturity, these securities do not lose money. HTM accounting allows the company to report changes in their interim value as unrealized losses or gains. This lets the investors get an idea of the underlying securities’ mark-to-market value and volatility. Management It should be noted that while SVB had negative equity and a really bad NIM outlook, they still did not have a Chief Risk Officer (CRO), which any bank should have. The reason for the most crucial role being vacant for 18 months is unknown. The CRO’s value in a bank is even more than that of the CEO because a Bank’s balance sheet in its entirety is nothing but risk. The management team, while reassuring the shareholder, sold their own stake with the CEO personally unloading $3.5 Million worth of shares. Ironhold's Prediction In October 2022, our Chief Investment Officer, Siddharth Singhai, already suspected some financial institutions' failure. In an email to MarketWatch, he shared that he hadn’t foreseen another financial crisis, but he believed that certain financial institutions might be in trouble. “Capital adequacy ratios have been strictly maintained across most big banks.” Singhai said. “The trouble would be derivative books: They represent hidden leverage, and these are very complicated black boxes…We do think it’s quite possible that derivative books will get some banks in trouble. It’s however impossible to say exactly since these books are black boxes and quite often the banks themselves can’t make sense of these contracts.” The Federal Government has started the process of auctioning some segments of SVB, the most recent one being their VC loan book. In the meantime, The FDIC is making sure the depositors get their money back. Ripple and Aftereffect It is clear that depositors’ trust in the banking system is fleeting. Below is a table that depicts uninsured deposits. It can be seen that the three banks that failed, left most of their deposits uninsured, this only adds fuel to the fire and causes contagion. While the depositors have been saved for the time being because of the Federal Government and FDIC stepping in, it is unsure if such a scenario could repeat again. This is precisely the reason why Banks as institutions are hard to gauge and why most investors tend to stay away from them. Today, AT1 holders of Credit Suisse have been wiped out during their acquisition by UBS even though AT1 takes precedence over equity, a small print in the prospectus that bondholders should read actually mentions that the AT1 could end up worthless in case of a write-off, case in point, black boxes and unconventional. Banks are riddled with complex structures, derivatives and agreements that present a difficult time to any investor trying to understand them. In Closing In conclusion, lack of long-term foresight and eased interest rates over a decade allowed SVB to settle into an illusory comfort zone of buying a staggering amount of 10-year MBS while lending to VC and PE endeavors. As VC’s are inherently volatile high-risk borrowers, any negative change in market scenarios would strongly impact their performance. Additionally, SVB was not meticulous in ensuring that its deposits were majorly insured by the FDIC or judicious enough to hire a Chief Risk Officer. While it may be easy to project the current successes into the near future, banks should always be prepared for bear case scenarios. Having a strong risk management department and a diversified portfolio is essential for a lender to survive the highs and lows of the market. The entire situation is a very crucial lesson to investors and banks. Years of complacency have led to today’s sordid affairs and it is uncertain how long the contagion will last, fear makes people irrational, while some institutions might have deserved such contagion, some stand innocent victims to it. By Siddharth Singhai; Chief Investment Officer Nipun Alety; Analyst Aastha Aggarwal; Analyst John Kadiman; Analyst Huaxu (Eddie) Huang; 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.

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.

In the previous whitepaper, we discussed determining the margin of safety of your holdings, which can reduce risk and improve return simultaneously. In this whitepaper, we will examine the last task for surviving the bear market: planning with a financial advisor. Diversification Investors must plan their asset allocation thoroughly with a professional advisor. The first thing on the table is to ensure that your holdings are sufficiently diversified across asset classes and then within an asset class. Through diversification, one can mitigate unsystematic risk, which is a risk that is associated with a single company or single industry. For example, an investor whose portfolio solely focuses on airline stocks would’ve lost most of his money during the pandemic. However, suppose he decides to diversify his portfolio and build some positions in tech, medical care, and semiconductors. In that case, he may still lose some money but will be in a much better situation. Therefore, it is crucial for investors to have a diversified portfolio during the bear market. Credit:warrior training Leveraged Positions The second item on the checklist is to identify any high leverage positions. When the market is rising, having high leverage positions can lead to lucrative profits. Conversely, in a bearish market, high leverage positions face the risk of forced liquidation, which happens when investors fail to meet the margin call. In the current market, volatility in the foreseeable future would likely increase, which means if the market continues to decline, your positions can be wiped out completely. Therefore, leveraged positions are extremely dangerous, should be handled by financial advisors, and should be avoided if possible in our view. Credit:fvptrade Holding Period The next thing to be discussed is your holding period. For many investors looking to retire, their holding period may only be a year or two. For others who just started investing, their holding period can be decades. Investors near their retirement may have to sell their stocks in a bear market, which is the worst thing to do. Investors in this situation shouldn’t panic but thoroughly prepare for capital allocation with their financial advisor. Investors whose period is more than five years should treat this bear market as a bargain. As mentioned in the previous whitepaper, many tech stocks have taken an unfair beating in the current market correction due to mass psychology. Investors are moving their positions from tech to other sectors like energy because everyone else is selling their positions in tech, scaring away more investors. Nevertheless, many of these tech stocks have not changed in any way fundamentally. Investors should prepare a strategy with financial advisors for buying cheap and high-quality stocks like this. Liquidity Liquidity is another important matter to be discussed. Investors should figure out whether or not they need large amounts of cash in the upcoming future for events such as a wedding or home purchase. If investors have insufficient liquidity, they need to first stop investing more money into the stock market, and perhaps move to safer short-term instruments like T-bills. Last thing that investors would want is to be forced to sell their stocks in a bear market. Strategy After all of the above factors are taken into account with a financial advisor, investors should then have an answer to their strategy: defensive or aggressive. For those that have a short holding period and need liquidity, they need to be defensive. The average bear market has a 16-month duration. Unless investors can wait that long, they have to be defensive with cash instead of “buying the dip”. However, if you already have sufficient liquidity and a long time horizon, you are getting a bargain at the market’s current price, which means you can be aggressive. Buying in the declines often led to good results historically speaking. The average 12-month return after the end of a bear market is 43.4% while the average stock market return is about 10% per year. If one decides to be aggressive, there can be great returns coming out of the bear market. However, investors must discuss the exact strategy with their financial advisors before attempting to size up their positions. Credit: Wells Fargo In conclusion, investors should plan their strategy with their financial advisors after examining the following tasks: diversification and leveraged positions within their holdings, holding period, and needs for liquidity. After all, if your portfolio has been severely affected by the bear market, do not panic. Read our previous whitepaper on the market’s recovery after a crisis. Here Is Why You Shouldn't Sell In May and Go Away By Siddharth Singhai, Yang Peng, Emily Yang 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 whitepaper, we discussed calculating the intrinsic value of holdings, allowing investors to make better buy, hold, or sell decisions. However, the next step after finding the intrinsic value is determining the Margin of Safety of your holdings. Using the Margin of Safety, investors can buy a company at a market value much less than its intrinsic value, which can reduce risk and improve return simultaneously. Credit:Samco The concept of Margin of Safety was first introduced by the renowned value investor Benjamin Graham and his pupil Warren Buffet. It was soon popularized as investors find it effective as a cushion against errors in analyst judgment or calculation. As Warren Buffett says: “You don’t try to buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000-pound trucks across it. And that same principle works in investing.” The Margin of Safety is essentially a buffer zone for human error, bad luck, or unexpected events such as Covid-19. Take the McDonald’s store from our previous whitepaper, for example. We valued the store to be around $5.1 million, and the store will be sold at the end of year 5 for $1,000,000. If an investor buys the store at $4.5 million and all assumptions are accurate, they will get a 15% return after five years. The return is calculated by adding all the future cash flows that are discounted at the proper rate, subtracting the cost of the store, and divided by the cost of the store. However, the return may decrease if significant changes happen in the future that affect the store’s profitability or the neighborhood in which the store is located. For example, if people move out of the neighborhood around the store due to unexpected policy changes, and five new fast food restaurants with lower prices are built near the McDonald’s store, the assumption would completely change. As customers decrease, the store could shrink at -30% annually. The valuation of this store would change as well. Worst Case Scenario If the investors bought the store at $4.5 million, they would’ve experienced a 36% loss. However, suppose they use the Margin of Safety of 50% and buy the store for around $2.5 million through a bargain. In that case, the investor will still profit and make around a 14% return on investment even if the pessimistic scenario plays out. If everything is held steady and the optimistic scenario occurs, the investor will make a 106% return on the investment, almost ten times the return if they buy the store at $4.5 million. The Margin of Safety is often calculated by utilizing the market price as a point of comparison, and depending on risk preferences, it can vary among investors. In the previous example, the Margin of Safety is derived from the following equation A Margin of Safety of 50% can be considered to be very safe as it is very difficult for any high-quality business to lose more than 50% of its value. If a business is making $100 million each year, losing more than 50% of its value means that the business is only making $50 million or less each year throughout its lifetime. A 30% shrinkage in the previous example only led to a 44% decline in the store’s intrinsic value. Under this situation, the investor would still make money if they buy the store with a Margin of Safety. Therefore, it is very unlikely for a high quality business to lose half of its intrinsic value. Thus, risk-averse investors should always strive for a 50% margin of safety when analyzing new potential investments. Furthermore, once the stock reaches its deemed margin of safety investors should be cautious about the reasoning behind the drop. For example, many tech stocks have taken an unfair beating in the current market correction due to mass psychology. Investors are moving their positions from tech to other sectors like energy because everyone else is selling their positions in tech, scaring away more investors. Nevertheless, many of these tech stocks have not changed in any way fundamentally. This would be a special opportunity for intelligent investors who understand that the long-term demand in the tech market has not changed and the current short-term fluctuation is temporary. However, suppose the company’s price drop is driven by permanent, fundamental change such as emerging competitors, an adjustment in government regulations, or a complete change of management team. In that case, the short-term fluctuation would not be temporary. In conclusion, investors can be certain to achieve the Margin of Safety by buying businesses at a significant discount to their intrinsic value, and understanding the reasons behind the declines in a given stock price. In the next article, we will discuss the final task in surviving the bear market: strategizing with your financial advisors. By Siddharth Singhai, Yang Peng, Jake Glatz 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 article, we discussed the first task for investors to complete to survive under a bear market: identifying high-quality businesses in their portfolio. In this article, we will discuss task two, calculating the intrinsic value of businesses that can allow investors to make better buy and hold decisions. After identifying the high-quality businesses in their portfolio, investors should start determining the intrinsic value of the companies they own. Especially in the present day, with high inflation and sour markets, it is crucial to find a company’s intrinsic value. A company’s intrinsic value is key to surviving a bear market and making more intelligent buying, holding, or selling decisions. The intrinsic value of businesses is the present value of all expected future cash flows generated from business activities which are then discounted at an appropriate discount rate. The intrinsic value of a business differs from the market price because it is reached through objective calculations rather than the animal spirits of the markets on any given day. Credit: Market Business News Such a difference is shown in the graph above. As the graph shows, the stock market is efficient over the long run yet inefficient over the short run. The market value of a company can fluctuate significantly in any direction during the short run; however, the long-term movement will eventually reflect a business' intrinsic value. Company ABC, with an intrinsic value of $10 billion, can have a market cap of $16 billion when the market sentiment is optimistic and drop to $3 billion when it is pessimistic. However, this company will eventually arrive at its intrinsic value of $10 billion. There is one way that investors can go about calculating this value through qualitative and quantitative techniques. Qualitative as the name implies is everything outside of the numbers including the ethics and intangible characteristics of the business. While the quantitative side includes factors such as the numbers on the statement sheets and exact cash flows of the company. Take the company ABC, for example. ABC'S intrinsic value is derived from using a DCF model, which for inputs requires factors such as growth rate and projected cash flow. To find the values of these factors, a qualitative analysis must be deployed. Using qualitative analysis, investors are looking for factors such as competition, business demand, operating infrastructure, and other factors, which determine ABC’s growth and profits. Therefore, Investors have to take both quantitative and qualitative factors into account to calculate the intrinsic value of companies. Credit: Corporate Finance Institute Take a McDonald's store, for example. The qualitative and quantitative analysis must be used to value this McDonald's store. Qualitative Analysis: This McDonald's store has experienced an average of 500 customers daily, and the average profit from each order is around $5.5. Since the store opens daily, we can roughly estimate that it generates $1,000,000 in profits yearly. Furthermore, there are only two fast food restaurants within a five-mile radius of the store, and no new restaurants have opened up in the past year. The neighborhood where the store is located is expected to have a 5% population growth, and the store is looking to hike its price by 5% annually. Lastly, the owner is looking to close the store and sell its equipment and real estate at the end of year five, yielding a $1,000,000 income or the terminal cash flow. Therefore, we can assume that this store's terminal value will be $1,000,000, and its profit will grow by 10% over the next five years due to low competition, customer growth, and price increase. Credit: Google Quantitative Analysis: Investors can find the intrinsic value of the McDonald's store by using the above formula.The idea behind this formula is to discount all the future cash flows from this McDonald's using a rate that represents your opportunity cost. A typical discount or interest rate that investors can use is 10%, which is the long-term average return from investing in equities. Using this formula, investors can find the intrinsic value of the McDonald's store, given that the growth, which is 10%, remains steady for the next five years. Through valuation using conservative assumptions, investors can find that the McDonald’s store’s intrinsic value is around $5.1 million. Investors can use such methods to figure out the value of most equities. However, the key is buying the equity at much less than its intrinsic value, which will both reduce risk and improve return at once. In the following newsletter, we will discuss the importance of having margin of safety in your investments is key to surviving a bear market. By: Siddharth Singhai, Yang Peng, and Jake Glatz 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

All four major index funds have suffered significant losses since 2022. The Russell 2000 Index has dropped 33.2% from its all-time high, and the Dow Jones, which consisted of mainly blue-chip stocks, has decreased by nearly 20% from its all-time high. The stock market has officially turned bearish, which makes it critical for investors to manage their portfolio properly in order to survive the bear market. Therefore, it is important that investors can complete the following tasks Identify the high-quality businesses in their portfolio Determine the intrinsic value of their holdings Ensure they have sufficient margin of safety in their holdings Plan with their financial advisors Credit: Beaconsi.org In this article, we will discuss how investors can identify the high-quality businesses in their portfolio. Investors should start looking over each company in their portfolio and determine which companies are high quality and profitable. Now, many may wonder what defines a high-quality company. A high-quality company should exhibit the following characteristics: high returns on capital and modest leverage. Under the current environment, the FED is raising interest rates and the demand is receding. Low-quality businesses without attractive products or good business strategies will be likely to experience substantial loss as purchasing activities will likely decrease in the upcoming years. Low-quality companies usually have tremendous debt, lose money from its core business activities, and suffer from poor management. The return of capital of a company serves as a measure of the profitability and value-creating potential of companies relative to the amount of capital invested. For example, if you start a hot dog stand in Manhattan, and you earn $3 from each hot dog that you sell for $10, your profit margin will be 30%. Let’s say the initial investment is $10,000, and if you sell 10,000 hot dogs during the year, your return on capital will be 300%. Companies with high return on capital indicate a sustainable business model producing massive profits and that these companies have superior competitive positioning in their industry. Take Apple, for example. Apple’s return on capital is 54% in 2021, meaning that the company earns $1.54 for every dollar that it has put into the company. This is the end result of Apple being one of the most successful companies across the globe. Credit: Apple When it comes to debt and leverage, many investors may think debt will hurt a company more than it helps. Although the idea of which may not be one hundred percent correct, high leverage will magnify a company’s risk significantly if there is a downturn. Low-quality companies often do need to borrow a lot of money to support development and innovation; however, too much debt can greatly diminish a company's return on equity and profitability if there is a downturn. A great business doesn’t need leverage to earn a high return of capital. In times of economic crisis, businesses with lots of leverage and weak balance sheets are the first ones to go out of business. Vast majority of business failures or investment failures are a direct result of excessive leverage. Credit: Google Image During recessions, depending on leverage, the same hot dog stand can be in two different situations. Low Leverage: The business will continuously generate profits and survive when demand recess due to its high-profit margin. Will be just as profitable or more when demand comes back up again. High Leverage: The business’ capability to produce substantial profits will be severely limited as most of which are going into loan and interest payments. Unlikely to stay solvent during an economic crisis. Credit: Google Image Furthermore, temporary demand fluctuations do not affect long-term demand, which means companies with profitable products and modest leverage will continue to thrive in the long run. In the long run, high-quality businesses are like tennis balls; when they get hit by a crisis, they will always find a way to bounce back. Low-quality businesses, on the other hand, are like eggs. Whenever a crisis strikes them down to the ground, they crumble permanently. By identifying high-quality businesses, investors can be assured that their portfolio will be able to handle economic downturns with ease, and come out the other side stronger. In the next newsletter, we will discuss how investors can calculate intrinsic value and can make more educated selling and buying decisions. By: Siddharth Singhai and Yang Peng 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

“People who succeed in the stock market also accept periodic losses, setbacks, and unexpected occurrences. Calamitous drops do not scare them out of the game.” -Peter Lynch The current turmoil in the stock market has driven many investors away. Since 2022, the Nasdaq has been down 24%, and the S&P 500 has dropped nearly 20%. (Source: Investing.com) It seems like the stock market's performance has proven the adage" Sell in May and go away" to be true. However, investors should value the opportunity that arises from the recent downfall. The U.S. economy: There are multiple factors contributing to the stock market’s lousy performance. For one, the United State’s GDP has decreased for the first time since quarter two in 2020, causing investors to fear and panic. But if we expand our time frame, we can see that one minor disruption in a few quarters is a mere blimp compared to the long-term U.S. GDP’s secular uprising trend. There is no need to be scared of a minor decrease in one, two, or even three quarters. As per the graphs below, the U.S GDP has fluctuated over the years as the U.S experienced Cold War, Dot Com Bubble, and the 2008 Financial Crisis. However, the short-term decrease in GDP when these crises happened is insignificant compared to the long-term GDP trend, which is a rising secular trend. (Source: Macrotrends). (Source: Macrotrends). Individual companies: Some may still fear and panic about some companies’ slow growth. For example, Amazon’s operating income decreased to $3.7 billion in the first quarter, compared with $8.9 billion in 2021. There was also a net loss of $3.8 billion in the first quarter, or $7.56 per diluted share, compared with a net income of $8.1 billion, or $15.79 per diluted share, in the first quarter of 2021. Other blue chip stocks, such as Walmart, also experienced a slowdown. Walmart’s net quarterly income fell to $2.05 billion, or 74 cents per share, compared with $2.73 billion, or 97 cents per share, from a year ago. (Source: Walmart) However, we need to view these problems in the current context. With inflation rising, it is natural for many households to save money and purchase cheaper items since they are not receiving any stimulus checks. Furthermore, grocery stores like Walmart face increasing supply chain costs that take a bite out of their earnings. Walmart's inventory also increased by 33% as it made aggressive buys to get ahead of inflation and make sure items stayed in stock. (Source: CNBC) The rising logistic costs result from supply-side disruptions caused by the pandemic, which will most likely resolve over the long term. Therefore, we shouldn't think that the future of Walmart is gloomy just because of one or two-quarters of lousy performance under the current economic environment. Furthermore, the average lifespan of a company on the Standard and Poor's 500 Index is 21 years, which is 84 quarters. (Source: Statista) One-quarter of bad performance only constitutes 1/84 or 1.19% of a company's lifetime, which does not affect a company's long-term fundamentals. Furthermore, Any business's fundamental or intrinsic value is the sum of all cash flows it will generate in the future discounted to the present. As previously mentioned, bad performance in one quarter is unlikely to change a company's fundamental or intrinsic value permanently. Therefore, Walmart's ability to generate long-term future cash flows is most likely unchanged. Let’s look at Walmart’s stock price since it went public. Although there were seemingly major downfalls at specific periods, Walmart rebounded strongly and has maintained a steady upward trend. Additionally, looking at Walmart’s earnings per share (EPS) for the past twelve years, we can observe that its EPS has rebounded strongly after every significant downturn. (Source: Macrotrends). A similar situation is also happening to Amazon. The pandemic and subsequent war in Ukraine have brought unusual growth and challenges to Amazon in early 2022. Amazon has been navigating a host of economic challenges, including rising inflation, higher fuel, and labor costs, and global supply chain snarls. But its history is perhaps key to understanding why these problems don't matter. Looking at Amazon's past EPS(Earnings Per Share), we can see that it grew rapidly and steadily and survived crises such as the Dot Com Bubble and the 2008 Financial Crisis. Ultimately, the company's long-term fundamental value drives a company's growth. As we can see, Amazon's stock price kept increasing, mirroring its growing earnings. (Source: Macrotrends). In conclusion, Investors should always be focused on the long-term fundamentals of a business as that is what ultimately drives a company's stock price over the long term. Most Importantly, any event that doesn't directly affect a business's long-term cash flow generation abilities can be safely ignored. By: Siddharth Singhai and Yang Peng 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