In brief
Richard Driehaus is the founder and chairman of Chicago-based fund management firm Driehaus Capital Management. He rose to prominence in the investment community during the 1980s and 1990s by delivering impressive returns using momentum strategies that focused on small and mid-cap stocks. He was particularly attracted to firms that displayed strong earnings growth and he used earnings ‘surprises’ as buy and sell signals.
Background
Driehaus began investing in the stock market at the tender age of 13 (with the proceeds of a paper round) and he went on to spend considerable time researching and reading investment newsletters. In an interview for Jack Schwager’s book The New Market Wizards: Conversations with America's Top Traders, Driehaus said he had been particularly inspired by John Herold’s America’s Fastest Growing Companies. It was here that he began to focus on what he perceived as the importance of long term earnings growth as the ultimate driver of share price movement.
Driehaus set up his own broking and fund management business in the early 1980s after successful spells as a money manager for firms including A.G. Becker, Mullaney, Wells & Co. and Jesup & Lamont. By 2000 his success had earned him a place in Barron’s All-Century Team – a group of influential fund managers that counts investment gurus Peter Lynch and Bill Miller among its members.
Investment strategy
While Driehaus has never directly documented his investment techniques in a book, several analysts have scrutinised his strategies. According to the American Association of Individual Investors (AAII), the heart of the Driehaus method is to identify those companies with improving earnings growth rates and then identify which of them are most likely to continue the trend. Driehaus then screens for firms that are beating analyst expectations and producing positive earnings surprises.
In Schwager’s The New Market Wizards, Driehaus explained that while he was prepared to hold equities for very long periods of time, his strategy meant being willing to turn over the portfolio more frequently than the conventional norm to get superior returns.
He claimed to take exception to the market paradigm of ‘buy low and sell high’, believing instead that more money is made buying high and selling at even higher prices. He explained:
“That means buying stocks that have already had good moves and have high relative strength – that is,…
