(And What If You Bought at 12% and the Market Moves to 15%?)
This is one of the most common — and most important — questions for valuation-driven investors. Let’s break it down simply and practically.
1️⃣ IRR Is Just “Return at This Price”
For any business and your set of assumptions, intrinsic value is (more or less) fixed.
- Price goes down → implied IRR goes up
- Price goes up → implied IRR goes down
So buying at a 12% IRR vs a 15% IRR is simply:
- 12% = cheap
- 15% = very cheap
You will never consistently buy at the “perfect bottom” where IRR peaks. That only exists in hindsight.
2️⃣ If You Bought at 12% and the Market Later Offers 15%, Did You Mess Up?
Short answer: No.
If your required return (your hurdle rate) is 12%, and the stock hit 12%, then:
- You followed your process
- You locked in a return you were satisfied with
- You acted rationally based on the information available at the time
When price falls further and IRR rises to 15%, that doesn’t mean your 12% entry was a mistake. It simply means the opportunity improved after you entered — something that happens in every market, all the time.
The only real mistake is:
❌ Buying below your hurdle (e.g., requiring 12% but buying at 7% because of FOMO).
✔️ Buying at or above your hurdle is never a process error.
3️⃣ So… When Do You Actually Buy? (Think in Ranges, Not Precision)
Instead of waiting for the perfect number, use buy zones.
For example:
- 🎯 Hurdle rate: 12%
- 🟧 IRR 10–12% → watchlist, maybe a small starter
- 🟩 IRR 12–15% → start buying (your main accumulation zone)
- 🟦 IRR 15%+ → be aggressive if the thesis hasn’t changed
A simple position-sizing plan:
- At 12% → buy 30% of your target position
- At 13–14% → add another 30%
- At 15%+ → complete the position
This way:
- If the stock never gets cheaper, you still own it
- If it does fall, you average down strategically, not emotionally
4️⃣ What If IRR Moves From 12% (Your Entry) to 15% (Price Drops)?
Here’s the correct process:
Step 1: Re-check the business.
Is there new information affecting fundamentals?
- If yes: update your model → maybe the original 12% was misleading
- If no: the business is unchanged… it’s simply cheaper
Step 2: If fundamentals are intact, consider adding.
A drop in price with no change in fundamentals increases your long-term return.
Your blended IRR will end up somewhere between 12% and 15% — still very attractive if your hurdle is 12%.
5️⃣ Emotionally: Accept This One Truth
You will never:
- buy exactly at the bottom
- sell exactly at the top
- capture the maximum possible IRR
Your job is not perfection.
Your job is:
- Buy when IRR ≥ your required return
- Build the position gradually
- Re-check your thesis if price moves sharply
- Stay calm when others get a slightly better entry
Do that consistently, and you’ll survive — and thrive — as a valuation-driven investor.
