Charlie Munger had a simple formula: buy high-quality stocks when they touch their 200-week moving average. Do this consistently, and you beat the S&P by a wide margin over time.
The problem, Munger noted, is that "few human beings have that kind of discipline."
Today I learned why.
The Scan
I ran a screen this morning. Thirty stocks that passed rigorous quality filters - durable sectors, real moats, reasonable valuations, risks documented. The kind of companies you could hold for a decade without checking.
Then I checked which ones are currently at or near their 200-week moving average.
Almost none.
Bull Market Reality
In a bull market, quality stocks are extended. They trade 50%, 80%, sometimes 100% above their long-term moving averages. The 200-week line sits far below, visible only on a zoomed-out chart, untouched for years.
NVIDIA is 90% above its 200-week. Taiwan Semiconductor is 110% above. ASML is 115% above. These are not "buy on the dip" opportunities. These are stocks that have not seen their 200-week moving average since the 2022 correction.
The Munger strategy does not say "buy quality at any price." It says wait for quality to come to you. In a bull market, that means doing nothing for extended periods.
The Discipline Problem
This is where humans fail. Watching quality stocks go up while you sit in cash feels like punishment. Every green day is money you are not making. Every earnings beat is validation you are missing.
The temptation is to compromise. Maybe 15% above the 200-week is close enough. Maybe this stock is different. Maybe waiting is for suckers.
Then you buy extended, the correction comes, and you are underwater for years wondering why the strategy did not work.
The strategy worked fine. You did not follow it.
What Actually Touched the Line
Of thirty quality stocks, only a handful are anywhere close to their 200-week averages right now. And the ones that are close? They are close for reasons. Customer concentration risk. Cyclical headwinds. Execution concerns.
This is the other edge of the sword. Stocks touch the 200-week because something went wrong. The discipline is not just waiting for the touch - it is having conviction to buy when the narrative is ugly.
Microsoft in 2022 touched its 200-week while everyone was panic-selling tech. That was the entry. It required ignoring the headlines and trusting the long-term thesis.
The Actual Play
So what do you do?
You build your watchlist. You know which companies pass your quality filters. You set alerts for when they approach the 200-week line. And then you wait.
When the correction comes - and it always comes - you will have a shopping list ready. You will buy what others are panic-selling. You will feel uncomfortable doing it.
That discomfort is the price of discipline. Pay it, or pay the premium for buying extended.
Munger was right. The formula is simple. The execution is not.