Three Stocks for the Next Crash: A Value Investor's Checklist

The ultimate test for any investor is not how they react to a market rally, but how they hold up when the tide turns. As Charlie Munger famously argued, if you can't stomach a 50% decline in your portfolio, you'll never achieve exceptional results. This isn't a theoretical exercise; it's a reality check. Even the strongest companies, from Berkshire Hathaway to Amazon, have weathered such drops. The rule separates those who can endure temporary pain from those who lock in losses at the worst possible moment. For the disciplined investor, the goal is to build a portfolio that can survive these inevitable cycles.

Today's environment creates the classic value-investing controversy where this test is most relevant. Sweeping policy uncertainty and high valuations have shaken the macroeconomic outlook, leading to extreme volatility. When markets overreact to troubles-whether from tariffs, inflation, or sector rotation-it frequently sets the stage for a potential recovery. The key is to identify companies whose fundamentals remain intact through the storm. This requires focusing on what is researchable: sustainable competitive advantages, positive operational changes, and healthy balance sheets that can withstand near-term challenges.

Modern value investing demands a new mindset. The sector composition of value stocks has diversified far beyond traditional cyclical industries. Today's opportunities can be found in technology, healthcare, and consumer discretionary, where long-term potential is being overshadowed by short-term noise. The hunt for value isn't about chasing cheapness for its own sake, but about finding durable businesses trading below their intrinsic worth because of a temporary controversy or market overreaction. In this setup, the 50% Drop Test serves as the ultimate emotional filter, ensuring your portfolio is built not just for growth, but for resilience.

Stock 1: Visa (V) – The Unbreakable Network Moat

For the value investor, the ideal crash-era acquisition is a business with a wide, unbreakable moat. Visa fits that description perfectly. Its competitive advantage isn't a fleeting brand or a patent; it's a global network effect. With 4.9 billion Visa payment cards worldwide, the company has created immense switching costs for both merchants and consumers. The sheer ubiquity of its network-processing 257.5 billion transactions last year-means that for most people, using a Visa card is simply the default. This creates a durable, high-margin business model that is remarkably resilient.

The financial strength of this model is the second pillar of its appeal. Visa generates recurring revenue from transaction fees with minimal capital intensity. It doesn't need to manufacture products or maintain vast inventories. This operational efficiency translates directly to a powerful balance sheet, capable of weathering economic cycles. In its last fiscal year, the company produced $20.1 billion in net income. For a business that compounds cash flow at this scale, the ability to withstand a downturn is built into the model.

This brings us to the valuation question. Visa trades at a premium, as it should for a leader with such dominance. Yet, from a value perspective, the premium is paid for durability, not hype. The company's market capitalization reflects its entrenched position and predictable cash flows. For patient capital, the margin of safety isn't in a bargain basement price, but in the certainty that the business will continue to generate substantial returns for decades. In a world of uncertainty, Visa represents a compounding engine where the width of the moat provides the ultimate protection.

Stock 2: Coca-Cola (KO) – The Global Brand Fortress

For the patient investor, few companies embody the value philosophy better than Coca-Cola. Its enduring appeal is built on a fortress of a moat that is both wide and deep. The brand itself is a global icon, recognized in nearly every corner of the world. This immense intangible asset, combined with an extensive and efficient distribution network, grants the company significant pricing power. Consumers choose Coca-Cola not just for the drink, but for the promise of a consistent, familiar experience. This allows the company to pass through cost increases and maintain premium margins, a hallmark of a durable business.

Financially, Coca-Cola has demonstrated remarkable resilience through economic cycles. The company's consistent sales of a daily necessity provide a stable revenue stream. More importantly, it converts that revenue into strong free cash flow, which has funded a long and uninterrupted history of dividend growth. This track record of returning capital to shareholders is a powerful signal of management discipline and financial health. In a downturn, when discretionary spending contracts, the demand for Coca-Cola's products tends to hold up, making it a defensive staple in a portfolio.

From a valuation standpoint, the stock offers a margin of safety. While it commands a premium for its quality, it trades at a reasonable price relative to its earnings. This allows an investor to buy a high-quality, compounding business at a fair price. For those following the principles of Warren Buffett, who has held Coca-Cola since 1988, the appeal is clear: a business with a wide moat, consistent cash generation, and a management team focused on long-term value. In a market prone to volatility, Coca-Cola represents a reliable anchor-a business that can weather storms and continue to pay and grow its dividend for decades.

Stock 3: Chubb (CB) – The Insurance Underwriter with a Berkshire Seal

For the value investor, the ultimate endorsement often comes not from a headline, but from a quiet accumulation of shares by a proven master. That is the story of Chubb. The company's wide moat is built on the twin pillars of a powerful global brand and deep expertise in the complex insurance sector. This is a business where underwriting discipline compounds over decades, generating a steady stream of "float"-premiums collected before claims are paid-that Berkshire Hathaway's management has long prized. The moat is wide because switching insurers is a costly, disruptive process for large commercial clients, locking them into relationships with firms like Chubb that have proven claims-handling capabilities and financial strength.

This is where Berkshire Hathaway's actions speak volumes. Since 2023, the conglomerate has been steadily accumulating Chubb shares, building an 8.8% stake worth around $11.2 billion. While the motive could be a potential acquisition-Berkshire has a history of buying insurance companies-the continued accumulation, even after Warren Buffett stepped down as CEO, signals profound confidence in Chubb's management and its financial health. In the value investing playbook, few things carry more weight than a large, patient capital holder doubling down on a position. It suggests the business fundamentals are sound enough to weather any near-term turbulence.

The financial setup for 2026 looks promising. Following strong fiscal results, Chubb's management anticipates "double-digit growth" in earnings per share and tangible book value. This focus on underwriting quality over volume is the hallmark of a durable model. The stock, however, trades at a discount to its intrinsic value, offering a margin of safety. For an investor who believes in the long-term compounding potential of a well-run insurance underwriter, Chubb represents a classic value opportunity. It is a business with a wide moat, a Berkshire seal of approval, and a price that invites patient capital to join the compounding journey.

Conclusion: The Strategy and the Watchpoints

The strategy for these three stocks is clear: build a position over time, using market volatility as a friend to average in at a lower cost. This is the disciplined approach of the value investor. When prices swing, as they inevitably do, the focus should be on the underlying business, not the ticker symbol. The goal is to acquire shares of companies with wide moats-Visa's network, Coca-Cola's brand, Chubb's underwriting expertise-at prices that offer a margin of safety. This requires patience and a plan, not a reaction to daily noise.

The primary risk is not the crash itself, but failing to have a plan and the emotional fortitude to execute it when volatility returns. As Charlie Munger noted, the ultimate test is whether you can stomach a 50% decline without selling. The 2008 financial crisis demonstrated this starkly; many investors locked in losses by panicking, missing the eventual rebound. For this thesis to work, you must be prepared to hold through such storms, trusting that the fundamental strengths of these businesses will endure.

Key watchpoints will confirm or invalidate the long-term thesis. The pace of economic growth and the sustainability of consumer spending are critical for all three. Visa and Coca-Cola rely on transaction volumes and brand loyalty that can be pressured in a deep downturn. Chubb's insurance underwriting is sensitive to broader economic cycles and credit conditions. Equally important is the path of interest rates. While a dovish Fed may support equities, rising rates can compress insurance company investment returns and increase borrowing costs for consumers and businesses alike.

In the end, the investment in these companies is a bet on durability. The watchpoints are the signals that the moats are still intact. If economic growth falters, interest rates spike, or consumer spending collapses, it would challenge the compounding engines we've identified. But for now, the setup remains one where patient capital can be rewarded. The strategy is to own the quality, and the watchpoints are the metrics that tell you when to stay the course or reassess.