Build Your Crash Shopping List Before You Need It (The Buffett Method)

A few days ago, someone posted in r/ValueInvesting:

"If a major market drawdown hits, what Buffett-style stocks are you buying?"

The post got 216 upvotes and 222 comments. Hundreds of people weighed in with individual stock ideas — BRK.B, AAPL, GOOGL, JNJ, KO, MKL, you name it. But here's what nobody did:

Nobody provided a system.

Just a pile of stock names with no framework for why they qualified or at what price they'd actually buy. When the market actually drops 30%, that list is useless. You'll freeze, second-guess every name, and either buy at the wrong time or not at all.

The difference between investors who actually buy during crashes and investors who intend to buy is preparation. The people who bought in March 2020, in October 2022, in March 2009 — they had their lists ready. They had buy prices pre-calculated. When the red hit their screen, they didn't agonize. They executed.

This is how you build that list.

Why You Need This List Before the Crash

Human psychology is your biggest enemy during a market crash. The same brain that tells you to buy during euphoria will tell you to sell during panic. That's not weakness — it's neuroscience. When the market drops 20%, our stress response treats it the same as physical danger.

The only way to override that response is to have made the decision before the panic hit.

Warren Buffett famously said: "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."

Benjamin Graham said something similar, but more actionable: "The investor's chief problem — and even his worst enemy — is likely to be himself."

The crash shopping list is your defense against yourself. It answers the question before the question becomes urgent.

The Buffett Criteria: What Makes a Stock Worth Buying at Any Price

Buffett's investment framework evolved from pure Graham (statistical cheapness) to something more sophisticated: durable competitive advantages at a fair price. Here's the simplified version he's described across 50+ years of Berkshire shareholder letters:

Criterion 1: Return on Equity > 15% Consistently

ROE measures how efficiently a company generates profit from shareholders' capital. Buffett wants to see 15%+ ROE sustained over at least 10 years — not a one-year spike.

Why this matters: High, consistent ROE is the fingerprint of a competitive moat. Companies without real advantages can't maintain high ROE because competition drives down returns. Companies with moats — brand power, switching costs, network effects, cost advantages — maintain them for decades.

How to screen: Look at 10-year ROE on any financial data site. Companies with >15% average ROE across a decade, without heavy leverage, are the candidates.

Real examples: Coca-Cola (KO): 35-40% ROE for 30+ years. Visa (V): 45%+ ROE. Apple (AAPL): 160%+ ROE (note: this figure is distorted by negative book value from aggressive buybacks — ROE becomes mathematically unreliable when equity turns negative, so treat it as a sign of capital return aggression rather than true return on capital). Procter & Gamble (PG): 25-30% ROE. For cleaner examples of high ROE with positive book value, see Moody's (MCO): 50%+ ROE, or Visa (V): 45%+ ROE.

Criterion 2: Low Capital Expenditure Requirements

Buffett calls businesses that require constant reinvestment to maintain their position "capital-hungry monsters." He prefers businesses that generate cash without needing to reinvest most of it back in.

The metric to watch: free cash flow margin — what percentage of revenue becomes actual cash after capex. A great business has >15% free cash flow margins. A bad one earns $1 billion but spends $950 million just to stay competitive.

Why it matters for crashes: Low-capex businesses are still generating cash even when revenues dip. They don't need external financing. They can buy back stock, pay dividends, or make acquisitions while competitors struggle.

Real examples: Visa: ~55% free cash flow margin (processes transactions, no physical product). Microsoft: ~35% FCF margin. Coca-Cola: ~25% FCF margin. Contrast with airlines: single-digit or negative FCF margins due to constant aircraft replacement.

Criterion 3: Pricing Power ("Can They Raise Prices Without Losing Customers?")

This is Buffett's most qualitative criterion, but arguably the most important. He's said that the single most important decision in evaluating a business is pricing power.

The test: if this company raised prices 10% tomorrow, what would happen?

Coca-Cola raises prices 10%? You still buy Coke. (Pricing power = strong)
Generic widget manufacturer raises prices 10%? You switch suppliers immediately. (Pricing power = none)

In inflationary environments, pricing power is the difference between expanding margins and collapsing margins. Companies without it get squeezed from both sides — costs rise, but they can't pass them through.

Real examples with strong pricing power: Hermes (luxury goods), Apple (switching costs + brand), Moody's (regulatory moat + oligopoly), FICO (scoring is required for mortgages — literally no alternative), Church & Dwight (Arm & Hammer — brand lock-in on commodity products).

Criterion 4: No Dependency on Capital Markets

Buffett famously avoids businesses that need to regularly issue equity or tap debt markets to fund operations. The reason: when markets freeze (as they do in every major crash), these companies become vulnerable at exactly the wrong moment.

The test: Does this company fund its growth from internally-generated free cash flow? Or does it need Wall Street's cooperation to survive?

Banks, leveraged buyout targets, growth-stage biotech, and real estate developers with floating-rate debt all fail this test. They're fine in good times, but capital market dependency becomes fatal in crashes.

The flip side: Cash-generative, low-debt businesses benefit from crashes. They can acquire competitors, buy back stock at deep discounts, and grab market share while leveraged competitors scramble for survival.

Criterion 5: Management With Integrity and Owner-Orientation

Buffett says he looks for managers who act like owners — who allocate capital rationally, don't empire-build, and communicate honestly even when the news is bad.

This is harder to screen for quantitatively, but the signals are:

Share buybacks when stock is cheap (not just to offset dilution)
Honest discussion of mistakes in annual letters
Long tenure + significant personal ownership
Capital allocation track record over 10+ years

The 5 Stock Categories for Your Crash Shopping List

Based on the Buffett criteria above, here are the five categories worth screening — and specific names to put on your pre-built watchlist:

Category 1: Consumer Moat Businesses

These companies sell products people buy regardless of the economy. Their moats are brand loyalty, distribution networks, and habit formation.

Target buy criteria at -30% market drawdown:

| Stock | Normal Range | "-30% Market" Buy Price | Why | |-------|-------------|------------------------|-----| | Coca-Cola (KO) | $60-70 | ~$45-50 | 35-year dividend growth, irreplaceable brand, global distribution | | Procter & Gamble (PG) | $155-175 | ~$115-125 | 67-year dividend growth, personal care/cleaning pricing power | | Church & Dwight (CHD) | $95-115 | ~$70-80 | Arm & Hammer brand lock-in, consistent 10%+ earnings growth | | Hershey (HSY) | $170-190 | ~$130-145 | Chocolate has one of the strongest brand moats in consumer goods |

Graham number check (PG example): With EPS ~$6.50 and book value ~$26/share, Graham Number = √(22.5 × 6.50 × 26) = √3,802 = ~$61.6. PG typically trades above its Graham Number due to quality premium — acceptable for Buffett-style investing, but Graham would only buy at significant discount.

Category 2: Financial Infrastructure (Not Banks)

Not traditional banks (too dependent on credit cycles and leverage), but the infrastructure that financial transactions run on — payments networks, credit scoring, insurance models.

| Stock | Normal Range | Crash Buy Price | Why | |-------|-------------|-----------------|-----| | Visa (V) | $270-310 | ~$210-235 | 55%+ FCF margin, no credit risk (just processes transactions), network effect moat | | Mastercard (MA) | $490-530 | ~$375-405 | Same model as Visa; global duopoly on payment rails | | Moody's (MCO) | $440-490 | ~$340-370 | Regulatory moat; every bond issuance requires a rating | | Markel (MKL) | $1,700-1,900 | ~$1,300-1,450 | "Baby Berkshire" — insurance float + equity portfolio, Buffett-style management |

Category 3: Healthcare With Durable Competitive Advantages

Healthcare demand doesn't crash with the economy. But not all healthcare stocks are equal — you want companies with patent-protected drugs, regulatory moats, or switching-cost lock-in.

| Stock | Normal Range | Crash Buy Price | Why | |-------|-------------|-----------------|-----| | Johnson & Johnson (JNJ) | $155-175 | ~$120-135 | Medical devices + pharma + consumer; 62-year dividend growth | | AbbVie (ABBV) | $165-195 | ~$130-150 | Post-Humira diversification working; 6%+ yield at current prices | | UnitedHealth Group (UNH) | $510-570 | ~$395-435 | Healthcare infrastructure — switching costs make it sticky | | Zoetis (ZTS) | $170-200 | ~$130-155 | Animal health; pet owners spend through recessions |

Category 4: Industrial Compounders With Moats

The best industrials don't just make things — they have switching costs, recurring revenue streams, and scale advantages that compound over decades.

| Stock | Normal Range | Crash Buy Price | Why | |-------|-------------|-----------------|-----| | Fastenal (FAST) | $75-90 | ~$58-68 | Industrial fasteners with embedded supply chain — switching costs are enormous | | Cintas (CTAS) | $185-210 | ~$145-160 | Uniform rental — once integrated, customers rarely switch | | Roper Technologies (ROP) | $560-610 | ~$430-470 | Niche software for industries with no competitors; 50%+ FCF margin | | Illinois Tool Works (ITW) | $245-270 | ~$190-210 | 100+ year dividend growth company; pricing power through specialty products |

Category 5: Software With Switching Costs

Software businesses with high switching costs are among the best businesses ever invented. Once a company's accounting, ERP, or workflow is built around your software, leaving is a nightmare — so they don't.

| Stock | Normal Range | Crash Buy Price | Why | |-------|-------------|-----------------|-----| | Microsoft (MSFT) | $415-460 | ~$320-355 | Azure + Office 365 = government/enterprise infrastructure; near-impossible to displace | | Veeva Systems (VEEV) | $220-260 | ~$170-200 | Life sciences CRM — regulatory requirements lock in customers | | Tyler Technologies (TYL) | $580-640 | ~$445-490 | Government software — once a city deploys Tyler's ERP, they're locked in for 15+ years | | FICO (FICO) | $2,100-2,400 | ~$1,600-1,850 | Credit scoring monopoly; Fannie/Freddie require FICO scores for mortgages |

How to Tier Your Crash Shopping List

One of the best frameworks for actually using your list is tiering by drawdown level. Different stocks deserve different conviction levels at different discounts:

Tier 1: "Start Buying at -20%"

These are the highest-quality compounders — the ones you'd be genuinely excited to own at any significant discount. They rarely go on sale.

Tier 1 candidates: Visa, Microsoft, Coca-Cola, Procter & Gamble

Rule: Deploy 1/3 of your intended position when these hit -20% from recent highs.

Tier 2: "Add More at -30%"

The market is genuinely scared. Most investors are selling. These are businesses with strong fundamentals you'd confidently hold for 5+ years.

Tier 2 candidates: Johnson & Johnson, AbbVie, Fastenal, Cintas, Moody's

Rule: Deploy another 1/3 of your intended position. You're averaging down into quality, not trying to catch a knife.

Tier 3: "Back Up the Truck at -40%"

These moments happen rarely — 2008-09, March 2020, late 2022 were the last opportunities. When they hit, the news is apocalyptic, and buying feels physically painful. This is when the biggest wealth is built.

Tier 3 candidates: Everything on your list. Add to all of them. This is the opportunity.

Rule: Deploy remaining capital. If you have dry powder, use it. If not, redirect dividends to the cheapest names on your list.

Running the Graham Number Check on Your Watchlist

For every stock on your crash list, run a Graham Number screen before adding it. This anchors your valuation expectation and prevents you from overpaying even during a crash.

Graham Number Formula: √(22.5 × EPS × Book Value Per Share)

Example — Coca-Cola at a crash price of $48:

EPS: ~$2.65
Book Value Per Share: ~$5.60
Graham Number = √(22.5 × 2.65 × 5.60) = √(333.9) = ~$18.27

Wait — KO's Graham Number is only $18? Why would Buffett pay $48?

Here's the important nuance: Graham's formula was designed for ordinary businesses. For exceptional businesses with decades of consistent growth and strong competitive moats, a premium above the Graham Number is justified. Buffett calls this "paying a fair price for a wonderful company rather than a wonderful price for a fair company."

The way to use Graham's framework for Buffett-style businesses: calculate the Graham Number to understand the floor, then apply a qualitative premium based on the moat strength.

A useful heuristic: For Buffett-quality businesses, buying at 2-3x the Graham Number with a 20-30% margin of safety from recent highs is a reasonable entry point. For ordinary businesses (cyclicals, commodity producers), stay closer to or below the Graham Number.

The Behavioral Side: Why Most People Won't Execute

Let's be honest about why most people fail at crash shopping, even with a list.

The Recency Bias Problem: After a 30% drop, it feels like it will drop 30% more. The news is terrifying. Every pundit is predicting depression. Your brain interprets "this is a bargain" as "this is a trap."

The Solution: Pre-commit. Write down in advance: "I will buy $X of KO when it hits $Y." Not "I will consider buying" — "I will buy." Treat it like a standing order.

The Cash Problem: Most people who intend to "buy the dip" don't have cash available when the dip happens because they're fully invested.

The Solution: Maintain 5-10% cash at all times, specifically earmarked for crash opportunities. Call it your "shopping fund," not your emergency fund. This is proactive dry powder.

The Single-Stock Fear: During crashes, even great businesses look terrifying. What if this one is different?

The Solution: Diversify your list. 15-20 names across 5 categories. No single stock is more than 10% of your crash deployment. You're not betting everything on one idea — you're buying a basket of quality businesses at a discount.

Your Action Item: Build the List Today

Here's the simple process to build your crash shopping list this week:

Pick 3-5 names from each of the 5 categories above that you genuinely understand and would be comfortable owning for 5+ years
Calculate your buy price for each at the three tiers (-20%, -30%, -40% from their current 52-week high)
Run the Graham Number for each and note whether you're buying at a premium to it (and justify why)
Set price alerts in your brokerage app for your Tier 1 prices
Keep it somewhere you'll actually find it — not buried in a note on your phone. Print it out if you have to.

The market will crash again. We don't know when. We don't know how deep. But we know it's coming, the same way we know the sun sets every evening.

The investors who build wealth over decades are the ones who treat market crashes as sales events rather than disasters. That mental shift doesn't come from courage or special knowledge — it comes from preparation.

Build your list now. When the crash comes, you'll execute instead of freeze.

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Disclaimer: This is educational content, not personalized investment advice. All stock examples are illustrative. Always do your own due diligence before making investment decisions.