It’s not just that growth stocks are “more appreciated” right now—in optimistic markets, they are often over-appreciated.
If you are running a DCF (Discounted Cash Flow) analysis and finding it hard to justify buying growth stocks, don’t worry. Let me explain exactly what phase the market is in, and why your numbers look the way they do.
1. Phase One: The Optimistic Market (Bullish)
When the market is euphoric, investor behavior shifts dramatically.
How Investors Behave
In this phase, investors are hungry for stories, potential, and excitement. They are willing to pay premium prices for:
- Tech & AI
- High revenue growth
- New market disruption
- Future possibilities
The Valuation Trap
Because the demand for “story stocks” is high, investors accept a lower Internal Rate of Return (IRR) just to get a piece of the action.
- Valuations: Sky-high.
- Forward Returns: Low.
- Typical IRR: Drops to 5–8%.
This is a nightmare for a disciplined DCF investor. The market narrative becomes:
“I know it’s expensive, but it will grow! It’s worth it!”
The Result:
Growth stocks will look expensive in your models. Your projected IRR will look low. This is normal. When markets are optimistic, growth looks overpriced, and only mature, “boring” names look reasonable.
2. Phase Two: The Pessimistic Market (Bearish)
Eventually, the cycle turns. Investor psychology flips from greed to fear.
How Investors Behave
Suddenly, investors hate uncertainty. They flee from “potential” and run toward safety. They want:
- Profits now
- Dividends now
- Stability
- Predictable businesses
The Opportunity
In this phase, growth gets punished. Even great companies get sold off heavily because people are scared. Growth stocks trade at lower PE and PS ratios with lowered expectations.
Suddenly, your DCF IRR jumps to:
- 12%
- 15%
- 18%
- Sometimes 25%+
The Result:
This is when value and DCF investors get their chance. We saw this in 2008, the 2020 pandemic crash, the 2022 tech correction, and specific cycles like the Indonesian 2015 correction.
The Golden Rule of Cycles
If you take one thing away from this post, let it be this rule:
📈 When the market is Optimistic:
Growth is overvalued. IRR is low. Being disciplined feels “boring” and difficult.
📉 When the market is Pessimistic:
Growth is cheap. IRR is high. Discipline wins big.
This is exactly why long-term investors outperform. They remain patient during the optimism and strike hard when pessimism hits.
What This Means for You Right Now
If your current analysis shows Growth Stocks IRR at 6–8% while Mature Stocks IRR is at 12–15%, it means one thing:
The market (specifically the Indonesian market or your current watchlist) is pricing growth very optimistically right now.
This is not a mistake in your math. It happens all the time.
It doesn’t mean you shouldn’t invest. It means you must stay disciplined. Don’t chase the hype. Wait for the cycle to turn. Because when it does, those same growth stocks will suddenly be available at a 15–20% IRR.
