Super Investor #23 in our series is Richard Driehaus – The Father of Momentum Investing. Richard Driehaus earns his place in our Super Investors Series because he revolutionized the way investors think about stock selection. While many legendary investors built their success by buying undervalued stocks and holding them long-term, Driehaus took a completely different approach—momentum investing. He believed that “buying high and selling higher” was a more effective strategy than searching for bargains. His ability to identify high-growth stocks with strong upward momentum made him one of the most successful fund managers of his time.
Unlike value investors who wait for the market to recognize an undervalued stock, Driehaus focused on companies that were already thriving, betting that their success would continue. His quantitative approach, use of technical indicators, and emphasis on earnings acceleration have influenced hedge funds, mutual funds, and growth-focused investment strategies worldwide. Driehaus proved that momentum investing can be a powerful tool when applied with discipline, making him a worthy addition to our Super Investors Series.
Who is Richard Driehaus?
Richard Driehaus was born in 1942 in Chicago, Illinois. His fascination with the stock market began early—he used money from his newspaper delivery job to start investing while still in high school. This early exposure to investing sparked a passion that would shape his career.
Driehaus went on to attend DePaul University, where he earned both a bachelor’s and a master’s degree in business. His academic foundation in finance provided him with deep insights into market behavior, but it was his real-world experience and unique investment philosophy that set him apart. Unlike traditional investors who sought undervalued stocks, Driehaus was drawn to stocks that were already performing well.
Professional Beginnings
After graduating, Driehaus worked as a research analyst and portfolio manager before launching Driehaus Capital Management in 1982. His firm specialized in high-growth stocks, embracing a momentum-driven approach that sought to capitalize on strong upward trends. Unlike many investors who were fearful of stocks at all-time highs, he saw them as opportunities. His unique perspective helped him generate market-beating returns and cemented his reputation as one of the most successful growth investors of his time.
Investment Philosophy: How Richard Driehaus Approached the Market
Driehaus was a strong believer in the power of momentum investing. He rejected the notion that buying undervalued stocks and waiting for them to recover was the best way to make money. Instead, he focused on stocks that were already performing well and had strong earnings growth.
Core Principles of Driehaus’ Investment Strategy
- Buy High, Sell Higher
- Driehaus focused on stocks that were already trending upwards rather than looking for bargain buys. He believed that stocks showing strength tend to continue their trend, making them excellent investment opportunities.
- Earnings Growth and Positive Catalysts
- He preferred companies with strong earnings growth, positive surprises in earnings reports, and upward revisions in earnings forecasts. He avoided companies that showed declining fundamentals, even if they seemed cheap.
- Relative Strength and Technical Analysis
- Driehaus relied heavily on relative strength indicators (RSI), moving averages, and breakout patterns to determine when to buy. He sought stocks outperforming the broader market and avoided those lagging behind.
- Cutting Losses Quickly
- One of his defining principles was strict risk management. Unlike buy-and-hold investors who often wait for struggling stocks to recover, Driehaus cut his losses early to protect capital.
- Portfolio Diversification with High Turnover
- His strategy involved higher turnover rates compared to traditional long-term investors. He was willing to sell stocks quickly if they lost momentum and reinvest in stronger performers.
Track Record: The Wins (and Losses) that Defined Driehaus
Driehaus Capital Management consistently delivered strong returns. His ability to identify stocks on the verge of explosive growth made him one of the most respected fund managers of his time.
Notable Investments
Though Driehaus did not disclose every trade, his firm invested heavily in high-growth sectors such as technology, consumer goods, and healthcare. Some companies that fit his investment criteria include:
- Nvidia (NVDA) – A company that has shown extreme price momentum and earnings growth, particularly in AI and GPUs.
- Tesla (TSLA) – A stock that has experienced multiple breakouts and rapid upward trends, fitting perfectly into Driehaus’ philosophy.
- Apple (AAPL) – A classic example of a stock that has maintained long-term momentum, frequently reaching new highs.
Major Wins and Market Influence
Driehaus’ funds outperformed traditional market indices by leveraging momentum investing principles. His strategy was particularly effective during strong bull markets when capital flowed into high-growth sectors. However, momentum investing can be volatile, and sharp market corrections posed risks to his approach.
Lessons for the Everyday Investor
Even for buy-and-hold investors, Driehaus’ philosophy offers valuable lessons:
- Trends Matter – Stocks that perform well often continue to perform well. Recognizing upward momentum can improve returns.
- Sell the Losers – If an investment is not working, it’s often better to cut losses early rather than hold onto a declining stock.
- Earnings Growth is Key – Companies with strong earnings growth tend to be winners in the long run. Look for businesses with rising revenues and expanding profit margins.
- Avoid Cheap Stocks Just Because They Look Cheap – Many “cheap” stocks stay cheap for a reason. Price should not be the primary reason to buy.
- Know When to Exit – Successful investors understand that knowing when to sell is just as important as knowing when to buy.
Challenges and Criticisms
While Driehaus’ momentum strategy led to impressive gains, it was not without drawbacks:
- Higher Turnover and Transaction Costs – Frequent buying and selling meant more transaction fees, which could eat into profits.
- Struggles in Bear Markets – Momentum investing works best in strong market conditions. During downturns, momentum stocks can reverse quickly, leading to losses.
- Shorter Holding Periods – Unlike Warren Buffett’s “forever” investing mindset, Driehaus favored shorter holding periods, which may not align with all investors’ goals.
The Legacy of Richard Driehaus
Driehaus revolutionized momentum investing and influenced modern hedge funds and growth-focused mutual funds. His approach remains a core strategy for many fund managers today.
His impact extends beyond investing. He was also a philanthropist, donating millions to education, the arts, and historic preservation. His contributions to finance and society make him a standout figure in the investment world.
Timeless Quotes and Wisdom from Richard Driehaus
“I want to be invested in stocks that are showing they can go higher.”
“Far more money is made buying high and selling at even higher prices.”
“Losers average losers.” – Driehaus strongly discouraged adding to losing positions, a mistake many investors make.
Conclusion: The Enduring Influence of Richard Driehaus
Richard Driehaus challenged conventional investing wisdom and proved that momentum investing could be a powerful strategy when applied correctly. While his approach contrasts with value investing, his principles—following strong trends, cutting losses quickly, and focusing on earnings growth—are valuable for all investors.
For long-term investors, his philosophy underscores the importance of recognizing winners early and knowing when to exit weaker investments. Whether you are a growth investor or a buy-and-hold advocate, learning from Driehaus can help refine your strategy and improve your investing discipline.
Happy Investing!