In 1992 Jack Schwager published a book of interviews with the best traders he could find, and partway through it a Chicago fund manager said something most readers would have marked wrong on a test.
The first rule of investing, the rule taught before any other, is to...
The manager told Schwager he took exception to it. Far more money, he said, is made “buying high and selling at even higher prices.”
The manager was Richard Driehaus. He had started out in 1968 generating research ideas at A.G. Becker, struck out on his own in 1979, and built Driehaus Capital Management into one of the most closely watched growth shops in the country by doing, over and over, the thing the first rule forbids. He looked for small and mid-sized companies whose earningsGlossary: A company’s profit after all its costs, interest and taxes. Earnings per share (EPS) divides that profit by the number of shares, so companies of different sizes can be compared. were accelerating, whose quarterly reports kept beating what analysts expected, and whose stocks were already climbing faster than the market. Then he bought them. Not at the bottom, not on a dip, but high, often at new highs, on the theory that a stock behaving that way was telling him something true about the business underneath it.
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