IRR

IRR (Internal Rate of Return) is the annualized-return metric that On the Nature of Long-Term Holds argues long-term holders should de-emphasize in favor of MOIC (multiple on invested capital). The case’s framing, which Kyle highlights: “IRRs can be splashy and sexy, but MOIC is what truly generates wealth and converts to nominal dollars.” Given a choice between a 35% IRR over three years or a 15% IRR over ten, the authors “would eagerly select the lower IRR for the longer hold” — because the math favors the longer hold in actual dollars: 35% IRR over three years yields a 2.46x MOIC, while 15% IRR over a decade produces 4.05x, and held for 25 years a 15% IRR becomes a ~33x MOIC.

The deeper point is that a high IRR over a short window is a trap: it rewards the flip and ignores the friction of trade (taxes, fees, idle cash, redeployment risk) that erodes nominal wealth. IRR makes splashy exits look attractive, but Compounding over decades — the engine of the long-term-hold and Holding Companies thesis — is measured in MOIC.

Context: Internal rate of return is the discount rate at which an investment’s net present value equals zero — effectively its annualized compound return. It is widely used in private equity and venture capital, where short holding periods can inflate the headline percentage relative to the nominal dollars actually returned.

Where this appears

• On the Nature of Long-Term Holds — IRR is the metric contrasted against MOIC; the article argues long-term holders should optimize for nominal-dollar MOIC, not splashy short-horizon IRRs.