Michael Burry's IV15 test: a cheap multiple is not enough
Michael Burry's August 28 public note explains why he pairs a 15-year return hurdle with competitive position and enduring return on invested capital.
Michael Burry's latest public sentence is about a valuation hurdle, not a stock tip:
"I use IV15 as a valuation guide, in conjunction with the firm's competitive position and its enduring return on invested capital." 1
Burry posted that sentence on August 28, 2026, in Cassandra Unchained. The same public excerpt says that one of his significant positions had become "an uncommon sell" and was "no longer" a significant position. The company and the full reasoning remain inside the paid portion of the post. 1
The sentence still gives investors something they can use. Burry places a stock's price beside two business tests: the strength of its competitive position and the return it can keep earning on the capital tied up in the business.
A price target, not a cheapness label
Burry explained
IV15 in a July 8 post. He called it the price at which he expects compounded annual returns of 15% over 15 years. He also called it a buy-price target rather than a simple price-to-earnings ratio. 2That distinction changes the question. A low multiple asks whether the market price looks small beside one accounting measure. An IV15-style hurdle asks whether the current price leaves room for a long period of cash generation, after the investor has made assumptions about growth, margins, reinvestment, and the eventual value of the business.
Burry says his calculation comes from discounted cash-flow analysis. He adjusts owners' earnings for stock-based compensation, accounting he considers unreliable, business quality, and special cases such as serial acquirers. The method therefore starts with a future cash-flow estimate and then tests how much the investor can pay today for the return target. 2
The label also encodes a time horizon. A 15% annual return over 15 years depends on the path of the business across many reporting periods. The price can move sharply around that path. The calculation is useful only when the investor keeps the business assumptions visible.
Three tests in one decision
The August 28 sentence joins three tests that investors often separate.
Price. What price would leave a reasonable margin for a long holding period? Burry's IV15 is his answer for a particular company under his own cash-flow assumptions. Another investor can use a different hurdle, but the decision still needs a price tied to an expected return.
Competitive position. Can the business protect its economics as rivals, customers, suppliers, and technology change? A low price can reflect a weak franchise, a shrinking market, or management that keeps spending capital without earning enough in return. A valuation target built on durable cash flows becomes fragile when the business loses its position.
Return on invested capital. How much operating profit does the business produce from the capital it needs? Burry adds the word "enduring" because one strong year says little about the economics of a company. A business that repeatedly earns high returns can reinvest, return cash, or survive mistakes with more room than a business that needs larger and larger amounts of capital for flat returns. The reader should examine the trend and the reason behind it.
The tests constrain one another. A high-quality business can deserve a higher price than a mediocre one. A strong business can still make a poor investment when the price assumes too much success. A low price can still be a trap when the competitive position and returns on capital are deteriorating.
How to read the filing behind the multiple
Burry's framework puts accounting quality between the price and the business judgment. Investors can turn that idea into a short reading sequence.
- Start with owner cash, not headline earnings. Reconcile net income with operating cash flow, capital spending, working-capital needs, and the cash required to keep the business competitive. A reported profit becomes more useful when the business converts it into cash without repeated outside financing.
- Separate employee pay from business investment. Stock-based compensation is a real cost to shareholders because the company issues claims on future ownership. Burry specifically says he adjusts owners' earnings for it. The adjustment matters most when a company presents buybacks as shareholder returns while issuing enough stock to offset them.
- Ask what the competitive position protects. Name the switching cost, distribution advantage, cost edge, network effect, brand, regulation, or specialized know-how. Then ask how the advantage appears in customer behavior and margins. A label such as "moat" carries little information until the business mechanism is visible.
- Trace the return on capital through a cycle. Compare returns across several years and through weaker demand, higher input costs, or heavier investment. A durable return comes from a business model that keeps earning after conditions change.
- Set the price after the assumptions. Write down the growth, margin, reinvestment, and terminal-value assumptions before looking for a price that makes the result attractive. An apparently cheap multiple can disappear when the cash-flow forecast uses conservative inputs.
This sequence keeps the stock price in its proper place. Price begins the inquiry, while the business determines whether the price has meaning.
What the public excerpt leaves open
The August 28 post gives a method and signals a sale. The public section leaves the sold company unnamed, and the subscription boundary prevents a complete reconstruction of Burry's position, assumptions, and trade timing. The article therefore supports a reading lesson rather than a portfolio instruction.
Burry's 15% figure is his return hurdle for a company under his model. Actual returns depend on the price paid, the cash the business produces, the durability of its competitive position, and the assumptions that enter the valuation. The figure belongs at the end of the analysis, after the investor has examined the business.
For an individual investor, the durable takeaway is a sequence of questions: What cash will this business produce for owners? What protects that cash? How long can the business earn attractive returns on the capital it needs? Which assumptions make today's price meet the return hurdle? The answer should come from the business and the price together.
Read the original: Michael Burry's "Trading Post August 28, 2026".
References
- 1Michael Burry, "Trading Post August 28, 2026"
michaeljburry.substack.com
- 2Michael Burry, "Trading Post July 8, 2026"
michaeljburry.substack.com
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