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“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 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

“Lack of resale inventory combined with strong consumer demand continues to boost single-family home building.” - Chuck Fowke, National Association of Homebuilders (NAHB) Chairman At the moment, there is a historic opportunity available in the homebuilding sector, since 2014, there has been a significant undersupply of housing, offering homebuilders a great opportunity for profit as they take advantage of this deficit. As the shortage continues through the current, uncertain economy, this sector will see much more safety and security of investment than most others. Housing Demand: Historically, the United States population has grown constantly and consistently on an annual basis. According to Census data, the total number of households increases, on average, by about 1.2 million per year. Additionally, over the course of 2021, the most recent full year of Census data, total households increased by almost 1.5 million, or 1.15%, as the market recovered from the Covid-19 pandemic. This means that, in theory, there must be 1.5 million more homes on the market to ensure a place for everyone to live, representing the demand in the housing market. Housing Supply: With the new needs of consumers in the housing market, homebuilders cannot meet the demand with housing starts. Inventory, the number of vacant housing units for sale on the market, hit an all-time low in November of 2021, as seen in the graph below. This means there are few options for homebuyers to choose from, increasing the need for new homes. Annual privately-owned housing starts have exceeded their historical average since 1959 of around 1.4 million. The current levels sit just above 1.7 million annual housing starts, yet homebuilders still can not meet demand. Even with all of these new homes being started and added to the market, the new supply and existing inventory still cannot handle the influx of demand. Since the credit crisis, housing inventory has steadily decreased. In contrast, housing starts have steadily increased, illustrating that housing demand has outpaced supply. This has left a large gap to fill for homebuilders as they work to build enough homes to keep up with the growing demand. Additionally, it will be hard for homebuilders to bridge this gap. The construction industry is short of 650,000 workers, according to a model that the Associated Builders and Contractors developed. Also stemming from the backlog caused by increased housing demand is a material shortage. A statistic provided by the National Association of Homebuilders stated that 90% of homebuilders reported materials shortages and delays in sourcing the materials. Therefore, due to the mere cost and shortage of both materials and labor, the timeframe for completing a new house has increased. Surge in Home Prices: Lack of supply has compounded into home prices increasing tremendously over the past few years. It is simply within the dynamics of supply and demand - prices rise when supply is low, and demand is high. Housing demand has reached a level where buyers are competitive, increasing the average home sale price due to bidding wars. The current median home price is not far off from the all-time highs of $411,200 recorded in the third quarter of 2021. With inventory at an all-time low and sales for new and existing homes at levels only seen before the credit crisis. The rising prices are bound to continue till we reach a normalized housing supply. The Housing Cycle: Just as the broader economy follows a business cycle with expansions and contractions, the housing market has its own cycle. The early 2010s marked the start of the recovery phase for the housing market after the credit crisis and giant housing bubble. New home construction slowed down in this period as the market absorbed the oversupply from the credit crisis. From that time until the present, there has been a slow expansionary phase as housing vacancies have declined and the construction of new homes has been steadily increasing. With the record low levels of inventory and the inability of housing starts to meet the increasing demand, the expansionary phase likely continues for the foreseeable future. Especially with the added difficulties of the supply chain and inflation, homebuilders still have much work to do to catch up. The Homebuilding Sector's Undervaluation: Houses are being bought at a rate where new homes cannot be built fast enough. Even with all of this happening, the relative valuation of the homebuilder sector remains very cheap compared to historical averages. The average homebuilder is only worth 6x earnings right now, well below the historical average since 2005 of the low teens. With the current high demand for housing and a 5-year projected earnings growth of the high teens, it is safe to say that there is much room for the sector to grow over the next couple of years. In addition, the industry has a return on invested capital (ROIC) of the mid-to-high teens, which is how well a firm allocates capital to generate profits. This is well above the broader market average of about 10-12%, showing homebuilders' high levels of profitability. Possible Risk Factors to Homebuilder Growth: Given the aforementioned statistics, some are still worried about the demand retreating due to rising rates. With most Federal Open Market Committee members expecting rates to stay below 2% in 2022, it will take more than that to deter new mortgages. Rates are still low enough to buy a new home with a 30-year mortgage comfortably. Despite the rate hikes this year, the demand in the housing sector stays strong. Why We Think This is a Great Opportunity: With all of these factors considered, it can be seen why the housing market is likely to continue its boom. High demand remains constant as very few homes are left on the market, and homebuilders struggle to construct enough new homes. While the boom may not be as drastic as in late 2020 and 2021, housing prices will continue to rise steadily. It is hard to predict by how much or for how long these conditions will continue, and supply-demand dynamics should always be considered locally on a state-to-state basis. However, it is safe to say that the current environment still offers much room for profit in the real estate market at large; Another 2-3 years of solid home prices makes the homebuilding sector a very attractive place to be for investors. By: Siddharth Singhai 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

"If you're in the market, you have to know there's going to be declines." - Peter Lynch Since 1950, the S&P 500 index, which tracks the performance of 500 large public companies in the United States, has been fairly valued or undervalued for most of the 70 years. These valuations allow for steady returns and a reliable market with minimal levels of volatility. However, there have been two instances in these 70 years where the S&P 500 has been extremely overvalued – the dot-com bubble in the late 90's and right now. This is not to say that the market is going to react in a similar manner to the crash of the dot-com bubble. Still, it is safe to say that the current market, as a whole, is overvalued. These high market valuations can be seen in the two graphs above, both of which are concerning. The price-to-earnings ratio, or PE ratio, divides a stock’s share price by its earnings per share. It shows relative valuation through the multiple of earnings that the market is willing to pay for a share of stock. The first graph shows the S&P 500’s PE ratio since 1950 compared to its average. As previously referenced, the present and the dot-com bubble are two times over this period where the market has been overvalued by two standard deviations of the PE ratio. The current market is well beyond the dotted line, representing the average PE since 1950. In the dot-com bubble, the S&P 500 fell by almost 50%, showing investors need to be wary of valuations nearing previous highs. In the second graph, the Shiller PE ratio is used. This form of the ratio is similar to the original, but it is averaged out over ten years and adjusted to inflation for more accuracy. Here it can be seen across the 150 years shown by the graph that the market is at its second-highest valuation, only behind that of the dot-com bubble. Any time this ratio has been above a value of 30, there has been a severe market crash – eg. Great Depression and the dot-com crash. The market currently sits at a SchillerPE of 34.81; if history repeats itself as it tends to, investors should brace themselves for rough market conditions. Low-interest rates enable the market to stay at these valuations without crashing, but if they end up rising, it could be detrimental. From the recent years of near-zero interest rates, low bond yields, and a large influx of federal spending into the hands of investors, it can be seen why the stock market has seen such an attractive investment. The historical returns realized over this period have also caused many to oversee the current burdens on the market. Intense inflationary pressures, record gas prices, the aftermath of a brutal pandemic, 20-year highs in S&P 500 valuations, and the conflict between Russia and Ukraine are all weighing down investor sentiment. Domestically, the most significant concern today is inflation, which can ruin a country’s economy if not properly contained. The Fed has already announced its plans to implement a contractionary monetary policy, which reduces the money supply through increased interest rates. With inflation surging, there is no alternative to the Fed raising rates, which has the possibility of sparking a surge of selling in equity markets. Rising rates are unattractive to businesses because it increases the price of borrowing money, leading to higher costs for companies to finance their operations. These costs usually result in lower profits due to the added borrowing expenses. Moreover, most companies use a large amount of debt in their capital structure to finance their business and invest in growth. Therefore, a hike in interest rates affects almost every public and private company by increasing its borrowing costs. The repercussions typically lead to a slowdown in overall economic growth. Considering the current overvaluations in the stock market, which signals that investors expect a large amount of growth in the coming years, a rise in interest rates could serve as a negative catalyst for stocks. Higher rates prompt people to invest in new bonds and to hold more money in savings accounts, driving capital away from overvalued stocks. Although, during a time of rising rates, the bond market also can hurt investors, dependent upon which bonds they invest in. Similarly, there will still be an opportunity to profit in equity markets, but the stellar returns seen by most companies from mid-2020 until late 2021 should not be widely expected. The current market environment is comparable to an overinflated bike tire. The tire, representing the stock market with high valuations, can still be used, but it will not be as smooth of a ride as with a perfectly inflated tire. Some air must come out of the tire to sustainably function. Similarly, money leaving the stock market brings companies back to fair valuations. No different from how air from the tire doesn’t just disappear; it goes back into the environment into the air we breathe; the money from the equity market gets invested into bonds, savings accounts, and other lower-risk investments. Alternatively, this is a healthy stock market if rates stay where they are. However, nobody knows where rates are going, and it is difficult to predict the stock market’s performance. With the current pace of inflation and the Fed’s sentiment, rates will likely rise. The amount by which they rise will make or break the overall markets, but it will be hard to stop the surging inflation and please equity investors simultaneously. In these times, being a blind investor in indices may lead to the inability to produce returns for years. During the dot-com bubble, which is the last time S&P 500 valuations were as high as they are now, it took eight years for the market to achieve its previous highs again. That said, even in this new bubble, there is an abundance of possibilities for investment profit in the markets. The next newsletter will detail how to mitigate risk and safely navigate an overvalued stock market. Siddharth Singhai Chairman & CIO of Ironhold Capital 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

Since the start of the new year, uncertainty and fear from various external factors have sparked a market correction and a rotation of positive sentiment out of growth and into value equities. For most of the pandemic, growth stocks outperformed due to the incredible amount of stimulus and low-interest rates, despite the looming fear of COVID-19’s lasting impact on our society and economy. The abundance of monetary policy decisions may have given investors too optimistic of an outlook on the future. Low rates and trillions in federal spending cannot sustainably continue for long periods. The Fed’s decision to wane off its spending and hike rates was needed to slow down the inflation caused by the COVID-19 stimulus. This is a large part of why value stocks have a higher sentiment than growth at the moment – inflation and rising rates lead to market uncertainty. Additionally, the developments in the conflict between Russia and Ukraine add to the worsening market sentiment and higher levels of caution from investors, catalyzing a rotation to value equities. It is essential to clearly differentiate between value and growth when talking about this trend. Intelligent investing is the search for value in the sum of a company’s free cash flows generated over its lifetime. These cash flows are discounted to the present to understand the company’s current value. The opportunity for a value investment comes from searching for undervalued or cheap companies compared to their discounted free cash flows. Some speculation about the future is used in predicting performance for value stocks. Still, sensible forecasts use historical trends and data. Therefore, the range of possible outcomes for the investment is smaller than that of a growth investment, significantly reducing the risk of loss. In contrast, investing in a speculative, or growth, stock comes with the ability to profit from the future value created by the company’s future growth of cash flows. The lifetime cash flows of the company are still summed and discounted to the present, except, since all or most profit lies in the future, the company trades at a hefty multiple of its current earnings in anticipation of future growth. Accordingly, the levels of speculation for growth investments are much higher than that of an intelligent value investment. Unlike value stocks, growth stocks have minimal amounts of concrete, historical information upon which to base their predictions for the future. Therefore, the risk factor associated with a growth investment is much higher due to uncertainty and a high dependence on unknown future performance. In a growth investment, risks of market share loss, cyclical downturn in demand, credit crunch, etc., are ever-present. The technicalities of the differences between intelligent and speculative investments, or growth and value stocks, explained above can be simplified down into an example in real estate. For example, a value-based stock investment would be comparable to a rental apartment in Manhattan. The property is worth $1,000,000, located in a low-crime area with an abundance of nice stores and restaurants, and set to bring in $50,000 of annual rental free cash flow for the owner. This apartment is undervalued since other properties in the area are worth $1,500,000, and the rental rates can be formulated from the history of payments in previous years. In addition, the property will appreciate 5% annually, judging from the trends of appreciation in the area. With this knowledge, it is safe to believe that these trends will continue in the future. However, this is not to say the owner could lose money from the investment in the case of a fire or flood, demonstrating the ever-present risk in all forms of investing. Property on the surface of mars provides an analogous example to speculative investment. Since the property is highly dependent on future growth, a $2,000,000 investment is required for purchase. At the time of payment, say there is no societal development yet on the planet and that nobody is willing to rent out the property. As space exploration and colonization become increasingly popular in the coming years, this investment could provide massive returns to the owner. However, it is still too early to know with any confidence. There are no previous trends or data to base the decision on; it is purely speculative with a lot of associated risk. As a result, one most likely would not commit to the purchase during a time of economic or political uncertainty. After making the distinction and connection between value and growth, it’s apparent why the market has begun a rotation to value and the possibility for the trend to continue for the foreseeable future. Due to the high levels of speculation involved in growth investing, uncertainty in the economy, politics, business climate, or any other external factor can severely impact growth equity sentiment. During periods where this does happen, value stocks are seen as a safer, more intelligent investment since people want companies with a history of profitability that are also undervalued. There is already a lot of guessing involved in growth investing, and factors like inflation, rising rates, and the conflict between Russia and Ukraine only increase the risk of wrongfully predicting the future cash flows of a company. Seeing the current market and the state of the world, an excellent environment for value to outperform growth now exists. These fears and uncertainty have led to an optimal market for value stocks. Siddharth Singhai Chairman & CIO of Ironhold Capital 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

"We don't prognosticate macroeconomic factors, we're looking at our companies from a bottom-up perspective on their long-run prospects of returning." - Mellody Hobson, President and co-CEO at Ariel Investments Ironhold Capital is excited to discuss some reasons why the Russia-Ukraine conflict and inflation are not detrimental to the long-term success of investors in the markets. Detailed below are the micro and macroeconomics of the situation and the best strategy for navigating the markets through times like these. The Russia-Ukraine conflict has been a burden on the markets for a large portion of this year. Vladimir Putin’s decision to spontaneously invade Ukraine with the rationale of gaining back territory that was once theirs, yet independent from that nation for over 30 years, has many fearing global involvement. The Russian leader has directly threatened Western governments, which includes the United States, about their support of Ukraine through the invasion and the sanctions imposed on Russia. Additionally, the nation is incredibly rich in natural resources, exporting a notable amount of energy, metals, and agricultural products for global consumption. This disruption has already started impacting supply chains, inventories, and production levels worldwide. It is unlikely, however, that this war will escalate to the same magnitude of involvement for the United States as World War II, the Vietnam War, or the Cold War. The United States and other NATO members have clarified that they do not want to be militarily involved. Instead, the U.S. is contributing through economic sanctions and diplomatic relations. While the markets have responded negatively to the invasion, it can be seen throughout history that there is always a recovery from geopolitical tensions and minimal long-term impact on markets and economies. As a result of the tensions, there has been an impact on global food and energy prices. Russia and Ukraine are both large producers of each good, but Russia’s exports are down due to sanctions, and Ukraine’s primary focus is on defending their country rather than their economy. However, part of the beauty of capitalism encompasses the dynamic of producers taking advantage of a gap between supply and demand. Energy and food supplies will recover as these alternative producers increase their output to match unmet demand. Therefore, these problems are short-term and should not be weighted heavily in the decision to make an intelligent investment. Additionally, the Fed will likely continue to raise rates, similar to their policy decisions in the 1970s. CPI nearly hit 15% twice over that decade, inducing rates to rise to almost 20%. With the current CPI being 8% and only subject to increasing pressure from the Russia-Ukraine conflict’s impact on growing food and energy prices, 25 basis points is only the start of rate hikes from the Fed. The U.S. economy is now in a unique situation after the COVID-19 pandemic, with inflationary pressure, rising rates, and war in Europe. During the Korean War, there were high levels of inflation, reaching just under 10%. Yet, with direct United States involvement in the war during this period, the stock market continued to rise. The monetary policy during this period was focused on controlling inflation, with multiple interest rate hikes. This shows that there are exceptions to the common belief that the stock market always declines during war and inflation. In other cases, war has been more detrimental, yet not catastrophic, to the markets. During World War II, the stock market dipped over the first two years of war, but the markets surged during the final three years. The stock market finished the war at nearly equivalent levels to where it started. Still, the monetary policy over that period was expansionary as the Fed lowered rates and promoted spending. This displays the market’s ability to recover through periods of war, but monetary policy during this time differed from what is presently needed to control inflation. These two examples of war’s effect on the stock market and the continually increasing chart above show that macroeconomics has minimal impact on the markets over time. Long-term, the market always recovers. Additionally, events like inflation, rising rates, and war are immaterial if a business is high quality and managed correctly. Coca-Cola is an excellent example of a long-lasting, outperforming, and excellently managed company. Their stock has continued to beat expectations for a century – this is not due to favorable macroeconomics over that time frame, but rather how well the business had been run. Their earnings power and excellent management over decades have made the company a great investment, and that trumped whatever happened with inflation, global conflict, or other macro events over time. This can be seen in the chart below, detailing the company’s stock history over the past sixty years. The business has fluctuated over time, but over the sixty years observed in the chart, it can be seen why this has been an excellent long-term investment. Coca-Cola has prevailed through challenging macroeconomic events - World War II, the Vietnam War, the dot-com bubble, and the credit crisis - yet it has generated tremendous returns. A number of bad things could happen to an economy; however, if a company’s underlying business is strong and is coupled with a good management team, it’s likely to be an excellent profitable investment. It is expected for the economy and markets to go through booms and busts, but it should be noted that there has always historically been a recovery, even throughout periods of uncertainty such as those present today. The best way to survive during times like these is through investments in high-quality businesses with excellent microeconomics. As previously stated, it is tough to predict what will happen to the economy on a large scale, but looking at companies through a microlens adds far greater certainty to the success of an investment. By: Siddharth Singhai 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

"The single-most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business." - Warren Buffett An inflationary environment is viewed as negative due to its ability to turn suspected profits into losses. If an investment in a stock, bond, or savings account produces a lower return than the inflation rate, the investor loses money. Due to this possibility, years of positive returns can fade into nothing if invested in the wrong assets. Inflation hurts the economy because it erodes the value of cash, meaning a dollar will not buy as much tomorrow as it does today. For example, in the diagram below, the $1.25 that buys a single cup of coffee in 2010, would not be enough to pay for the same cup in 2019. The price is increased to $1.59 because of the decreased value of the currency. However, there is little need to worry in an inflationary environment if the correct assets are selected. Historically, there are some asset classes that are safer and have outperformed during times of inflation: 1. High-quality companies with pricing power Since the dollar is worth less from the effects of inflation, prices must rise to maintain the relative worth of products and services. This means businesses may not be as profitable due to having to pay more for inputs and labor in production. The damages that this causes for a business should be worrisome for investors. Lower profitability due to rising input costs can make the difference between a company operating at a gain or a loss, negatively impacting stock price as investors see the inability of the business to make money. High-quality businesses with the capacity, known as pricing power, to raise prices without losing volume can maintain sales and profitability during inflation. Investing in a company with pricing power helps prevent the adverse effects mentioned above that are caused by higher input costs. These investments are typically in areas where demand is highly inelastic, such as consumer staples and biotech. Inelastic demand for a good or service represents the concept that the overall quantity demanded for that product is barely affected as price changes. For example, people need to buy food and medicine, whether inflation is present or not, because they are essential products in day-to-day life. Even with higher prices, consumers remain willing to pay for a product or service they truly need. Therefore, in an inflationary economy, pricing power is key – the consumer absorbs the higher price due to inelastic demand. When there are few alternatives to the company's product, people have no choice but to keep buying it, especially if it is an essential item in their lives. Rather than the firm enduring the negative impacts of higher costs, they leverage their pricing power to retain high levels of profitability as long as demand remains relatively equivalent to its levels before the price increase. At the same time, this ability brings both the company and its investors greater comfort and stability through rougher economic conditions. Companies that have the most pricing power are near-monopolies. An example of this is Anheuser-Busch's ownership of multiple top-selling beer brands. They control over 40% of the world's beer profits and produce about a quarter of the beer supply. With strategic acquisitions over the past few years, Anheuser-Busch remains in an excellent place to continue this near-monopoly. Since the company controls a significant amount of production, they have pricing power. Beer, classified as a consumer staple, also has fairly inelastic demand, so consumers will continue buying Anheuser-Busch's products independent of the economic environment. Moving to utilities, another essential service, many of the same benefits of companies with pricing power are bestowed to investors during inflationary times. Utility companies provide amenities like water, electricity, and natural gas to both residential and commercial properties. Maintaining much of the public infrastructure and providing services that people cannot live without, like heat, air conditioning, and water, utility companies see little change in demand during inflationary times. 2. Real estate or other long-contract assets with inflation protection There is another group of assets that perform at a higher caliber throughout inflationary pressures, With contracts that allow for price increases. For example, rental properties, power plants, and gas pipelines produce very stable cash flows with built-in pricing power in their contracts with consumers. These assets have considerably high inelastic demand; Housing, energy production, and infrastructure are essential for everyday life. During periods of inflation that bring higher prices to most items, people are willing to sacrifice their discretionary spending to pay for their mandatory expenses, like a place to live. Pertaining to real estate, investors should avoid properties that do not allow the increasing cost of inputs to be passed on to the end consumer in their contracts. Rent-controlled real estate is especially susceptible to inflationary pressures. Another appeal of real estate is that mortgage payments are fixed, which means any increase in monthly rent is an additional profit. For example, if a 30-year mortgage requires $4,000 payments per month and the current rental rate of a property is $5,000 per month, the rental rate can be increased to $5,500 per month, leveraging pricing power. This changes monthly profit from $1,000 to $1,500, a 50% increase in rental income. Below is a graph of equity REITs compared to the S&P 500 during the high inflation in the late 1970s and early 1980s. The dominance of real estate during inflation is illustrated in the graph; many economists draw parallels comparing the current economic environment to this inflationary period. Data Sources: reit.com; macrotrends.net 3. Businesses purchased at a discount to their intrinsic value The final method of navigating investments through inflationary times is buying a business for less than its intrinsic value. As opposed to the other investments discussed in the article, these businesses do not need to have significant pricing power. Sometimes the market does not realize the true value of a company, giving investors a great opportunity to capitalize on an undervalued business. To demonstrate the power of this strategy, take a company that is, for example, worth $100 but priced at $50. Suppose we can ascertain that a company's long-term fundamentals are unchanged. In that case, the company will reach its fair value over time. In other words, within typically 2-3 years, the company will go from $50 to $100, with annualized returns being 25%. This return is multiple times higher than the current inflation rate of about 8%. It is a great way to outpace inflation. It is essential to invest intelligently across all market conditions. However, the best way to do this is to combine the first and third strategies listed above. High-quality companies with pricing power selling at a discount to their intrinsic value is the most promising approach to navigating uncertain inflationary periods. At the same time, an investment that has both qualities would most likely prove to be an ideal asset to hold through any economic environment, including the market conditions existing today. Siddharth Singhai Chairman & CIO of Ironhold Capital 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.