DRIEHAUS’S WINNING TECHNIQUE
AN INTERESTING FEATURE of Driehaus’s technique of focusing on shares with exceptional growth potential is that he often ends up with smaller companies. It takes a lot of work to track them down, but since these shares are often neglected they can present exceptional opportunities.
A few aspects of his technique: • Be sure to develop a basic philosophy. If you don’t have that you won’t succeed in sticking to your investment plan in difficult times. To make such a philosophy part of your thinking means you have to conduct a considerable amount of digging yourself to find the potential winners. Focus on the growth potential of earnings and then watch whether the price moves in line with that. There must be a harmony between price and earnings growth. Accept that many of the best growth shares have a high price:earnings ratio and it’s therefore psychologically difficult to invest in them. Remember that high relative strength indicates that other investors are also prepared to pay a lot for the share. There are advantages in being a long-term investor. Therefore don’t allow a sudden bear market to disrupt your investment plan. • When a share moves strongly (up or down) as a result of important news it will tend to move in that direction for quite some time. Exploit this phenomenon.