Warren Buffett's stock screening criteria
Updated September 10, 2026.
Warren Buffett's stock selection isn't a secret formula. It's a short list of demands a business has to meet before he'll own it. Wonderful economics, low debt, a price below value, and a business he actually understands. Here are the six quality criteria, and the concrete numbers each one translates into when you screen for it.
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01 A business you understand
Buffett only buys what he can explain: how the company makes money, why customers keep coming back, what could break it. If a business can't be summarized in a sentence, it goes in the “too hard” pile, no matter how good the numbers look.
02 A durable competitive advantage
A moat (brand, network effects, switching costs, cost advantage) protects profits from competitors. In the numbers, a moat shows up as high returns on capital that persist for years rather than getting competed away.
03 High returns on capital
Return on invested capital and return on equity measure how much profit a business generates per dollar put to work. Sustained readings above roughly 15% mark the genuinely high-quality compounders Buffett favors.
04 Low debt
A wonderful business doesn't need leverage to look wonderful. The cleanest test is how fast debt could be repaid: long-term debt under about three years of earnings, and net debt under three years of free cash flow, means bad years are survivable and management isn't borrowing to flatter returns.
05 Consistent growth
Earnings, equity, and cash-flow growth that compound steadily over ten years beat a single explosive year. Consistency is evidence the advantage is real and repeatable.
06 A price below value
Even a wonderful business is a poor investment at the wrong price. Buffett waits to buy below a conservative estimate of value, the margin of safety that protects against being wrong.
The criteria in Buffett's own words
He has never published a checklist with numbers on it. The six criteria above are a reading of what he has written to shareholders for almost fifty years. Here is the source material, so you can judge the reading for yourself.
“We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be (1) one that we can understand, (2) with favorable long-term prospects, (3) operated by honest and competent people, and (4) available at a very attractive price.”
“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
“You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
“A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns.”
“First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price.”
Source: Berkshire Hathaway shareholder letters, quoted verbatim.
A worked example: See's Candies
The 2007 letter gives the numbers on the business Buffett calls his prototype. Berkshire bought See's in 1972 for $25 million. Sales were $30 million and pre-tax earnings were under $5 million. The capital needed to run the business was $8 million, so it was earning about 60% pre-tax on invested capital. Candy is sold for cash and the production cycle is short, so the business carried almost no receivables or inventory, and only modest seasonal debt.
Run it through the six criteria. A business anyone can understand. A brand people pay extra for, which is the moat. Returns on capital far above the 15% bar. Almost no debt. Slow but steady growth. And a price of about five times pre-tax earnings. Every box, and the price came last.
Turning the criteria into a stock screener
- Pull ten years of revenue, EPS, return on equity and long-term debt from the annual reports.
- Keep it if return on equity stayed above 15% every year.
- Keep it if earnings could repay its long-term debt within about three years.
- Keep it if revenue and EPS grew most years, with no long declines.
- Repeat for every company you care about.
The app runs these checks on every company it covers and keeps them current. Here are ten that pass right now. Each one carries a quality scorecard; here is how to read it.
- METAMeta Platforms
- MAMastercard
- ISRGIntuitive Surgical
- FIXComfort Systems USA
- RMDResMed
- VEEVVeeva Systems
- FNFabrinet
- LULULululemon Athletica
- DECKDeckers Outdoor
- ECGEverus Construction
These companies currently clear Wonderfolio’s quality bar. That is a measurement, not a recommendation, and it says nothing about whether today’s price is worth paying. For research and educational purposes. Not investment advice.
The largest companies on NASDAQ, NYSE and the TSX.
Then comes price. A company can ace every quality test and still be a bad buy if it's expensive. Estimate what it's worth with the intrinsic value calculator, then demand a margin of safety before buying. Quality tells you what to want; price tells you when to act.
Common mistakes when screening
- Trusting one great year. A single high return on equity can come from a one-off gain or a cyclical peak. Ten years of readings is the test.
- Reading return on equity alone. Buybacks funded with debt shrink equity and lift the ratio without improving the business. Check return on invested capital beside it.
- Screening for price first. A low P/E on a business with falling returns is a slower loss, not a bargain. Quality first, then price.
- Treating the list as the answer. A screen cannot see whether you understand the business or whether management is honest. Those live in the annual report.
Frequently asked questions
What are Warren Buffett's stock screening criteria?
Buffett looks for a business with a durable competitive advantage, an economic moat, plus high and consistent returns on capital, low debt, honest and capable management, and a business simple enough to understand. Then he insists on buying it for less than it is worth. In numbers, that often means sustained return on invested capital and equity above roughly 15%, debt low enough to repay in about three years of earnings, and a price well below intrinsic value. The ordering is the part most people skip. Quality comes first and price comes last. A cheap price on a business with deteriorating returns is not a bargain, it is a slower loss. Note also that the numeric bars are interpretations of his writing rather than a published checklist. He has never released one, and the spirit of the criteria travels better than the exact figures do.
Does Warren Buffett use a stock screener?
Buffett relies on judgment and decades of reading financial statements rather than a single screen, but his criteria translate cleanly into screenable filters: returns on capital, debt levels, growth consistency, and valuation. A screener narrows thousands of companies to a handful worth real research. It cannot replace the research itself. Be aware of what a screen structurally cannot see. Whether you understand the business, whether management is honest, and whether the moat is widening or narrowing are all judgments that live in the annual report, not in a database column. A screen is also backward-looking by construction, since every number in it already happened, and it will quietly reject good businesses whose latest year was distorted by a one-off charge. Treat the output as a reading list of ten to twenty names rather than an answer, and expect to reject most of them.
What return on equity does Buffett look for?
There is no official cutoff, but a common interpretation of his preference for highly profitable businesses is a return on equity sustained above about 15% over many years. Consistency matters more than a single high reading. A decade above 15% signals a durable advantage far more strongly than one excellent year does. Read return on equity alongside the debt, though, because the two interact. Equity is the denominator, so a company that borrows money to buy back its own shares shrinks that denominator and lifts return on equity without improving the underlying business at all. This is why return on invested capital, which counts debt as capital too, is the more reliable of the pair. A simple check is to compare the two across the same decade. If the gap between them has widened steadily, borrowing is doing the work, not the business.
What is an economic moat?
An economic moat is a durable competitive advantage that protects a business's profits from competitors: a strong brand, network effects, high switching costs, a cost advantage, or regulatory protection. In a screening context the practical question is how you detect one, since no data field is labelled moat. It shows up in the numbers as high returns on invested capital sustained over many years, which is why ROIC is the single most telling quality metric. Stable gross margins across a full economic cycle point the same way. Neither is proof. Both are evidence strong enough to justify reading the annual report, which is where you find out what the mechanism actually is. A screen can tell you a company has behaved as though it has a moat. Only reading tells you why, and only the why tells you whether it will still be there in ten years.
Can I apply Buffett's criteria to my own investing?
Yes. The criteria are public and the math is decades old. Nothing here requires special access or a professional terminal. The work is in gathering ten years of financials for each company, normalizing them so the years are comparable, and recomputing on every earnings report. That is genuinely tedious. Doing it by hand for a single company takes a couple of hours, and there are thousands of companies, which is the real reason most people never finish. A good way to start is to pick one business you already understand and work through its last ten years manually. Doing that once teaches more than reading about it ten times. Tools that automate the grind let you focus on the judgment the approach actually depends on: what you understand, and what it is worth to you. The arithmetic can be delegated. The judgment cannot.
What is Warren Buffett's 90/10 rule?
The 90/10 rule comes from Buffett's 2013 letter to shareholders, where he described the instructions in his will for the cash left to his wife: put 90% in a very low-cost S&P 500 index fund and 10% in short-term government bonds. It is advice for someone who will not pick stocks, and he has repeated it for most investors since. It is not a stock selection rule, and it is not how Berkshire invests its own money. The six criteria on this page are for the other path, the one Buffett himself takes: owning a small number of businesses you understand, bought below what they are worth. The two are not in conflict. His point is that stock picking only beats the index if you do the work, and the 90/10 split is what he recommends to anyone who would rather not.
How can I see what stocks Warren Buffett is buying?
Berkshire Hathaway files a Form 13F with the SEC within 45 days of the end of each quarter, listing its US-listed stock holdings. The filings are free on the SEC's EDGAR site, and many websites reformat them into a readable table. Read them with three caveats. The list shows positions at quarter end, not the trades in between, so a stock bought in January and sold in March never appears. Everything is at least 45 days old by the time you see it, and a position Berkshire is still building can be kept confidential for longer. And a holding is not a recommendation. Buffett has said many times that copying his purchases without understanding the business is the wrong lesson. The more useful exercise is to run his current holdings through the six criteria above and see why each one passed.
What is the Buffett indicator?
The Buffett indicator is the total market value of all US stocks divided by US GDP. Buffett described the ratio in a 2001 Fortune article as probably the best single measure of where valuations stand at any given moment, and the name stuck. It is a gauge for the whole market, not for a single company. A high reading says stocks as a group are expensive relative to the economy, and it says nothing about whether any one business is a wonderful company or whether its price sits below its value. That is why it does not appear in the six criteria on this page, which are all applied one company at a time. It is useful for setting expectations. When the ratio is high, bargains are rarer and the margin of safety you demand should be larger, but the work of finding them is the same.
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Wonderfolio is an educational research tool. It applies publicly known value-investing criteria to public data and is not affiliated with or endorsed by Warren Buffett or Berkshire Hathaway. Nothing here is personalized investment advice or a recommendation to buy or sell any security.