The Charlie Munger 200-week moving average strategy, explained

Search for the Charlie Munger 200-week moving average strategy and you will find the same idea everywhere: buy great businesses when their share price falls back to its 200-week moving average, then be patient. This guide looks at where that line actually comes from, what the 200-week moving average measures, why it can be a useful lens for high-quality stocks, where it breaks down, and exactly how StockOverlap's quality scan uses it.

What the 200-week moving average is

The 200-week moving average (often shortened to 200WMA or 200-week MA) is the average of a stock's last 200 weekly closing prices. Two hundred weeks is about 3.8 years of trading, so the line describes where the price has typically been over roughly the last four years. Each week the oldest close drops out and the newest one is added, which is why the average “moves”.

A quick hypothetical: if a stock's 200-week average is $100 and it trades at $96, it is 4% below the average. At $105 it is 5% above.

200-week vs 200-day moving average

The 200-day moving average, the one most traders quote, covers about 40 weeks, so less than a year. The 200-week average covers almost four years. A stock can drop below its 200-day line during an ordinary pullback, while falling back to its 200-week line usually means the price has given up most of its gains of the past several years. The two answer different questions and should not be confused.

Two practical details

• Use adjusted prices. Without split adjustment a 2-for-1 split would halve the recent prices and make the stock look far below its average when nothing has changed.
• Young companies have no 200-week average. A company that listed less than about four years ago does not have 200 weekly closes yet, so any screen built on this indicator skips it.

Did Charlie Munger actually say it?

The popular version, paraphrased: if all you did was buy high-quality stocks at their 200-week moving average, you would beat the S&P 500 by a wide margin over time, but very few people have the discipline to do it.

Here is the trail we could find. Larry McDonald, a former Lehman Brothers trader who wrote a 2009 book about the firm's collapse, says Munger told him this during a private conversation in Omaha. The line appears in McDonald's later book How to Listen When Markets Speak, co-written with James Robinson. We could not find it in any transcript, recording or book by Munger himself. Writing for AJ Bell in August 2026, Martin Gamble noted that we will never know whether Munger spoke those words, and that it seems unlikely he would reference a mechanical moving-average rule (AJ Bell).

That is why this page paraphrases the line instead of quoting it as Munger's words. It may be accurate. It may be a fair summary of his thinking compressed into a trading rule. Either way, nothing in StockOverlap depends on it being a real quote. What matters is whether the underlying logic holds up, and that logic is well documented.

What Munger and Buffett did say about quality and price

Munger's best-documented argument is that the quality of the business dominates long-term results. In a 1994 talk at the USC Business School he put it this way:

In the same talk he warned that quality alone is not enough, because the market eventually prices it in:

He went on to describe the “Nifty-Fifty” era, when well-known great companies reached 50 to 70 times earnings and a large investment disaster resulted from prices that were too high. Warren Buffett credited Munger with the same balance in his 1989 letter to Berkshire Hathaway shareholders:

So the documented philosophy has two parts: find businesses with durable, high returns, and avoid paying a silly price for them. A 200-week moving average rule is one crude way to impose the second part. It tells you where the price sits relative to its own multi-year history. It does not tell you whether the stock is cheap relative to its earnings or cash flow, which is why StockOverlap checks valuation separately (see the undervalued quality stock screener guide).

Why the 200-week average can help, and when it misleads

The case for it

When a business grows its earnings over many years, its share price tends to trend upward too, and the 200-week average trails behind it. A pullback to that average means the price has given back years of gains, often because sentiment has soured on the company, its industry or the market as a whole. If the business itself is still sound, that can be the kind of temporary setback a patient owner wants to buy into. The rule also forces patience: most of the time a strong compounder trades well above its 200-week line, so you wait.

Where it fails

• A falling average. If the price has been sliding for years, the average is sliding too, and “touching the 200-week line” is just another step down a long decline.
• The business may be breaking. Quality metrics come from annual and quarterly reports, so they lag. The market often marks a stock down before the damage shows up in the numbers. That is how a value trap looks from the inside.
• Expensive can stay expensive. A stock that traded at a very high multiple four years ago can sit right on its 200-week average and still be expensive on earnings.
• Hindsight in the evidence. Charts showing great companies bouncing off their 200-week line are usually built from companies we already know became great. Picking them in real time, before the outcome is known, is much harder, so treat those charts as illustrations, not proof.

None of this makes the indicator useless. It makes it a filter that needs an independent check on the business and on valuation, rather than a signal on its own.

How to build a 200-week moving average screen

1. Pick a universe. Liquid US-listed stocks with at least four years of trading history.
2. Compute the average from adjusted weekly closes and the % distance of the latest price from it.
3. Choose a band. “At the 200-week average” in practice means within a few percent of it. A tighter band gives fewer, cleaner candidates; a wider one gives more names to research.
4. Check the trend of the average itself. A rising average and a falling average tell very different stories (StockOverlap does not apply this check automatically, which is one reason it adds a separate value scan and exit rules).
5. Apply a quality filter that looks at several years, not one: the worst recent year of return on equity, earnings growth and how steady it was, gross-margin stability and debt.
6. Check valuation separately, for example free cash flow yield or earnings yield.
7. Decide in advance what would make you sell, before the price moves.

How StockOverlap uses the 200-week moving average

StockOverlap's quality scan (internally called the “Munger” scan, after the idea above) is built around the 200-week average. Once each trading day, after the US market close, it works like this:

1. Universe. US-listed stocks on the NYSE, Nasdaq and NYSE American with a market value of at least about $500 million, a share price of at least $5 and meaningful daily trading volume.
2. Price history. Weekly split- and dividend-adjusted closes are downloaded for every stock. Stocks with fewer than 200 weeks of history are skipped. The latest daily close is used as the current price.
3. The 200-week gate. Only stocks whose current price is within ±5% of their simple 200-week moving average move on to the quality scan.
4. Quality grading. Each remaining stock is scored out of 12 on return on equity (judged on its worst recent year), earnings-per-share growth and consistency, gross-margin stability, P/E relative to its sector, debt-to-equity, insider buying and selling, and recent earnings surprises. Hard knockouts remove companies with zero or negative return on equity in any recent year, earnings per share shrinking by more than 2% a year, debt-to-equity above 2.0, more than 20% of the float sold short, insider trades that are over 90% sales, or earnings misses of more than 10% in each of the last two quarters. Only stocks scoring 6 or more stay on the list. The full table is in the screener criteria guide.
5. A second, independent opinion. Passing the quality scan is not enough. A stock only becomes a Dual Pick if a separate value scan, which never looks at the 200-week average, also passes it on the same day, and it clears a combined-score and analyst-upside gate. That process is explained in how StockOverlap picks stocks.

Here is how that funnel looked in the most recent scan:

How the picks have done so far

These numbers are computed live from the public record, the same data the track record page uses:

Every Dual Pick is logged the day it first appears, and closed picks stay on the public track record. Two caveats: if a closed pick later qualifies again, its record is reopened at the original entry price, the earlier exit is removed, and it drops off the closed list and out of the realized stats until it closes again; and the exit rules have changed over time, so older closes may reflect earlier rules. Correction (October 2026): two picks that an exit-logic bug had wrongly closed as "likely delisted" while they were still trading were reopened, so they no longer appear in the closed picks or realized stats.

Frequently asked questions