Who was Richard Driehaus, and what is the Driehaus Screen?
Richard Driehaus (1942–2021) founded Driehaus Capital Management in Chicago and is widely credited as one of the fathers of momentum investing. He built one of the strongest small- and mid-cap records of his generation, and in 2000 Barron's named him to its All-Century Team — a list of just 25 managers that also included Peter Lynch and John Templeton. The Driehaus Screen is AAII's reconstruction of his classic momentum method, drawn from his chapter in Peter J. Tanous's 1997 book Investment Gurus. It hunts for smaller companies whose earnings and share prices are already climbing, on the wager that a strong trend pulls in more buyers and pushes the price higher still.
The core idea
This is a growth-and-momentum stock screen, not a bargain hunt. Instead of buying a cheap, unloved company and waiting for a recovery, Driehaus wanted businesses whose earnings growth was actively speeding up and whose shares were already outrunning the market. The acceleration does the heavy lifting: he looked for each year's earnings growth rate to top the year before it, and treated a positive earnings surprise — reported earnings beating the analyst consensus — as the catalyst that signals the market had underestimated a company.
Price action confirms the story. A four-week gain paired with 26-week relative strength measured against the stock's own industry keeps the list anchored to names investors are actively bidding up. Driehaus would even favor a stock in a strong industry group over a faster grower stuck in a weak one, on the view that group strength tends to carry its individual members. He also watched for what he called flexion points — companies whose losses are shrinking toward breakeven — as early evidence that a trend is about to turn up.
What the Driehaus Screen looks for
- Year-to-year growth in earnings per share from continuing operations has risen in each of the last four annual periods — Y4 to Y3, Y3 to Y2, Y2 to Y1, and Y1 to the trailing 12 months — so the growth rate accelerates step after step.
- Earnings per share from continuing operations over the trailing 12 months is positive.
- The quarterly earnings surprise, actual reported earnings versus the consensus estimate for the same quarter, is at least 10%.
- At least three analysts have published earnings estimates for the current fiscal quarter (Q0).
- The stock's price change over the last four weeks is positive.
- The company's 26-week relative price strength is at or above its industry's 26-week relative price strength.
- Market capitalization for the latest fiscal quarter is above $50 million and below $3 billion.
- Average daily trading volume over the last 10 days ranks in the top half of the database (percent rank of 50 or higher).
- American depositary receipts (ADRs) and over-the-counter (OTC) stocks are excluded.
- As an optional manual step, drop any company whose 26-week relative strength against the S&P 500 is negative.
The four-year acceleration filter is the demanding one. It throws out the one-good-quarter stories and keeps companies with a sustained, compounding improvement in results.
Why the approach can work
The engine here is the earnings surprise and the price drift that tends to follow it. Analysts have a documented habit of setting quarterly estimates too low, which makes beats common — and stocks that beat often keep climbing for weeks as the rest of the market and its estimates catch up. Requiring a 10% surprise, rather than any beat at all, screens for the ones large enough to matter. Fishing in the $50 million to $3 billion range is deliberate too: Driehaus wanted tomorrow's large caps while they were still small and under-followed, and the top-half volume rule keeps the survivors liquid enough to actually buy and sell.
What to keep in mind
Momentum reverses hard, and it reverses without warning. The four-week and 26-week windows can flash false signals, and a stock that led on the way up frequently leads on the way down, so this is a strategy that demands constant monitoring and a strict sell discipline — the returns depend on cutting losers quickly. Expect high turnover and the tax bill that comes with it. The results also mirror whatever is hot at the moment, tilting the list toward crowded industries, and the industry-relative-strength check has to be applied by hand. Small-cap names add their own volatility and thinner liquidity on top of all that.
Sources
Investment Gurus, Peter J. Tanous, New York Institute of Finance, 1997.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition.