The Substantial Opportunity Cost of Retained Earnings for Investors

When a company creates profits, it has a decision to make. It’s all between how much of the earnings they should pay back to shareholders as a dividend, and how much they should reinvest in the business. Keeping the earnings is known as retained earnings.

Many investors can be led astray by the deceitfulness of retained earnings because on the surface it sounds like a great idea.

Warren Buffett is a proponent of retained earnings, after all, his company Berkshire Hathaway retains all of its earnings. His argument is that the company can compound...