This screen was inspired by the late Charlie Munger, Warren Buffett’s business partner, who once described a dead-simple strategy for beating the market:
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 problem is, few human beings have that kind of discipline.”
Our Modified Munger Screen applies the following criteria, based on this original idea:
- Return on equity (“ROE”) exceeding 20% as a filter for high-quality businesses
- Insider purchases within the last three months, to screen for businesses where insiders see enough value in their own shares to make an open-market purchase
- Market capitalization over $1 billion to exclude micro-cap, low-liquidity stocks
- Stocks trading below the 200-week moving average, as well as those trading up to 5% above the 200-week moving average (this extra 5% lets us capture an additional set of stocks that are within 5% of trading below their 200-week moving average – a trend line that shows that average price of a stock over the last 200 weeks)
We also display each stock’s price-to-earnings (P/E) ratio, as well as its beta (a measure of volatility versus the overall market). These are not used in the screening criteria, but rather to provide a reference point for noting the valuation and volatility of the stocks on the list.
Click here to access previous Modified Munger Screens.