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Charlie Munger Strategy: Buy Quality Stocks at 200-Week Moving Average
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Charlie Munger’s Lessons to Buffett
Warren Buffett is widely regarded as the most prolific and successful value investor of all time in most Wall Street circles. However, Buffett did not achieve success on his own. His best “investment” decision was probably his teaming up with Charles Munger.
Munger, who passed away in November 2023 at age 99, was Buffet’s best friend and was full of comedic charm, wisdom, experience, and investment knowledge until the day he died.
Did Buffett and Munger Use Technical Analysis?
One of my favorite quotes, especially regarding investing, is “Simplicity is the ultimate sophistication.” Having tried nearly every indicator under the sun and multiple investing strategies over my years of investing, I have learned that successful investing is more about removing clutter and focusing like a laser on what really matters.
While I would label my own personal investing framework as a trend-following growth investor, I would never discount Buffett and Munger’s success, and I discovered an old Munger quote that resonates with me:
“If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time.”
The reason the quote resonated with me so strongly is because I have been utilizing this strategy for long-term investments for years, without seeing the quote. Though you and I will never be able to dig into a company balance sheet like Munger and Buffett, we can utilize some of these words of wisdom to make us better investors.
While Buffett and Munger are known chiefly for their deep fundamental analysis, the Munger quote suggests that the two investing legends use very long-term technical analysis to their advantage.
Buy Stocks Quality Stocks at a Discount
Before I get into some historical 200-week examples, investors must understand the nuances behind Munger’s 200-week strategy. Buffett credits Charlie Munger with advising him to stop buying companies only because they are deemed cheap. Instead, he advised Buffett to buy “wonderful” businesses at fair prices. There will always be stocks that have cheap valuations or stock prices. However, like in life, you often get what you pay for on Wall Street.
Rather than obsessing over share price or hyper-focusing on valuations, investors should buy:
· Liquid, Industry Leaders: Investors should focus on the cream of the crop.
· Healthy fundamentals:Buy cash-rich companies with strong fundamentals.
· Institutional Quality:Institutional investors drive stock prices on Wall Street, so investors should focus on these stocks. In addition, having “smart money” betting on a stock can provide more conviction to hold through price volatility.
The Power of the 200-Week Moving Average
Below are four fantastic examples of the 200-week moving average at work:
For decades, AAPL has an example of what market leadership looks like. In that time, AAPL has become a tech juggernaut, a cash machine, and a big money favorite. How powerful is the 200-week MA in leading stocks? AAPL shares have held the moving average for the entire millennium thus far from a split-adjusted $2 to $244 today. In fact, AAPL held the 200-week even through the Wall Street panic of the 2008 Global Financial Crisis.
Image Source: Trading
While the 200-week MA is a fantastic indicator, investors must understand that it is a very rare signal. For instance, AAPL has only tested the moving average five times so far in the 2000s.
It’s hard to imagine a world where semiconductor stocks are not juggernauts – especially with today’s technology. However, investors wanted nothing to do with NVDA in the depths of the 2022 tech bear market, where shares lost two-thirds of their value. That said, the 200-day provided a life-changing signal in late 2022 when the stock retreated to the 200-week MA.
After a decades-long bear market, MSFT shares began rallying again in the 2010s. Like the NVDA example, savvy investors could have picked up MSFT shares after an orderly pullback to the 200-week MA in late 2022. MSFT shares have doubled since.
Things looked dark for crypto in 2022 after several bankruptcies, the FTX debacle, and falling bitcoin prices. However, if you believed in Bitcoin, MSTR, a Bitcoin proxy, gave an incredible signal when it retreated from its $132 high to the 200-week moving average in the $30s. Though it took patience, MSTR 200-week buyers were rewarded handsomely when shares reached a staggering $540 by 2024.
Image Source: TradingView
AMD Offers a Long-Term Asymmetric Opportunity
Advanced Micro Devices ((AMD - Free Report) ) is a global semiconductor company that designs and develops a wide range of high-performance computing, graphics, and visualization technologies.
200-Week Moving Average
Eventually, all great stocks pull back, and AMD is no different. While the companies’ fundamentals remain strong, sentiment could not be worse for the stock, and that’s why contrarian investors should give it a look here. While most investors are hyper-focused on shorter time frames, AMD is making a rare retreat to its 200-week MA.
Image Source: TradingView
DeepSeek Overblown, AI Spending Remains Strong
Though NVDA is the undisputed AI king, AMD also benefits from the spending in the AI revolution (which shows no signs of slowing and may actually be accelerating). Meanwhile, the DeepSeek news of a Chinese large language model (LLM) that was built with far fewer GPUs than ChatGPT has largely been debunked.
AMD is a Value Play
AMD’s recent pullback is making the stock attractive from a price-to-book perspective. The P/B is at the lowest level since 2023 when the stock went on to make a massive move higher.
Image Source: Zacks Investment Research
Bottom Line
Charlie Munger’s impact on Warren Buffett and the investing world cannot be overstated. While fundamental analysis remains at the core of their strategy, Munger’s insights into the 200-week moving average highlights the importance of patience, quality, and discipline in investing.
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Charlie Munger Strategy: Buy Quality Stocks at 200-Week Moving Average
Charlie Munger’s Lessons to Buffett
Warren Buffett is widely regarded as the most prolific and successful value investor of all time in most Wall Street circles. However, Buffett did not achieve success on his own. His best “investment” decision was probably his teaming up with Charles Munger.
Munger, who passed away in November 2023 at age 99, was Buffet’s best friend and was full of comedic charm, wisdom, experience, and investment knowledge until the day he died.
Did Buffett and Munger Use Technical Analysis?
One of my favorite quotes, especially regarding investing, is “Simplicity is the ultimate sophistication.” Having tried nearly every indicator under the sun and multiple investing strategies over my years of investing, I have learned that successful investing is more about removing clutter and focusing like a laser on what really matters.
While I would label my own personal investing framework as a trend-following growth investor, I would never discount Buffett and Munger’s success, and I discovered an old Munger quote that resonates with me:
“If all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time.”
The reason the quote resonated with me so strongly is because I have been utilizing this strategy for long-term investments for years, without seeing the quote. Though you and I will never be able to dig into a company balance sheet like Munger and Buffett, we can utilize some of these words of wisdom to make us better investors.
While Buffett and Munger are known chiefly for their deep fundamental analysis, the Munger quote suggests that the two investing legends use very long-term technical analysis to their advantage.
Buy Stocks Quality Stocks at a Discount
Before I get into some historical 200-week examples, investors must understand the nuances behind Munger’s 200-week strategy. Buffett credits Charlie Munger with advising him to stop buying companies only because they are deemed cheap. Instead, he advised Buffett to buy “wonderful” businesses at fair prices. There will always be stocks that have cheap valuations or stock prices. However, like in life, you often get what you pay for on Wall Street.
Rather than obsessing over share price or hyper-focusing on valuations, investors should buy:
· Liquid, Industry Leaders: Investors should focus on the cream of the crop.
· Healthy fundamentals:Buy cash-rich companies with strong fundamentals.
· Institutional Quality:Institutional investors drive stock prices on Wall Street, so investors should focus on these stocks. In addition, having “smart money” betting on a stock can provide more conviction to hold through price volatility.
The Power of the 200-Week Moving Average
Below are four fantastic examples of the 200-week moving average at work:
Apple ((AAPL - Free Report) )
For decades, AAPL has an example of what market leadership looks like. In that time, AAPL has become a tech juggernaut, a cash machine, and a big money favorite. How powerful is the 200-week MA in leading stocks? AAPL shares have held the moving average for the entire millennium thus far from a split-adjusted $2 to $244 today. In fact, AAPL held the 200-week even through the Wall Street panic of the 2008 Global Financial Crisis.
Image Source: Trading
While the 200-week MA is a fantastic indicator, investors must understand that it is a very rare signal. For instance, AAPL has only tested the moving average five times so far in the 2000s.
Nvidia ((NVDA - Free Report) )
It’s hard to imagine a world where semiconductor stocks are not juggernauts – especially with today’s technology. However, investors wanted nothing to do with NVDA in the depths of the 2022 tech bear market, where shares lost two-thirds of their value. That said, the 200-day provided a life-changing signal in late 2022 when the stock retreated to the 200-week MA.
Image Source: TradingView
Microsoft ((MSFT - Free Report) )
After a decades-long bear market, MSFT shares began rallying again in the 2010s. Like the NVDA example, savvy investors could have picked up MSFT shares after an orderly pullback to the 200-week MA in late 2022. MSFT shares have doubled since.
Image Source: TradingView
MicroStrategy ((MSTR - Free Report) )
Things looked dark for crypto in 2022 after several bankruptcies, the FTX debacle, and falling bitcoin prices. However, if you believed in Bitcoin, MSTR, a Bitcoin proxy, gave an incredible signal when it retreated from its $132 high to the 200-week moving average in the $30s. Though it took patience, MSTR 200-week buyers were rewarded handsomely when shares reached a staggering $540 by 2024.
Image Source: TradingView
AMD Offers a Long-Term Asymmetric Opportunity
Advanced Micro Devices ((AMD - Free Report) ) is a global semiconductor company that designs and develops a wide range of high-performance computing, graphics, and visualization technologies.
200-Week Moving Average
Eventually, all great stocks pull back, and AMD is no different. While the companies’ fundamentals remain strong, sentiment could not be worse for the stock, and that’s why contrarian investors should give it a look here. While most investors are hyper-focused on shorter time frames, AMD is making a rare retreat to its 200-week MA.
Image Source: TradingView
DeepSeek Overblown, AI Spending Remains Strong
Though NVDA is the undisputed AI king, AMD also benefits from the spending in the AI revolution (which shows no signs of slowing and may actually be accelerating). Meanwhile, the DeepSeek news of a Chinese large language model (LLM) that was built with far fewer GPUs than ChatGPT has largely been debunked.
AMD is a Value Play
AMD’s recent pullback is making the stock attractive from a price-to-book perspective. The P/B is at the lowest level since 2023 when the stock went on to make a massive move higher.
Image Source: Zacks Investment Research
Bottom Line
Charlie Munger’s impact on Warren Buffett and the investing world cannot be overstated. While fundamental analysis remains at the core of their strategy, Munger’s insights into the 200-week moving average highlights the importance of patience, quality, and discipline in investing.