It is not difficult to see why, because retained earnings is the money that a company can reinvest into the company for future growth, and the return on equity determines to a large extend the extra income that will be generated from these investments. So the higher the retained earnings and the higher the return on equity, the faster the intrinsic value of a company will grow over time. Learn how to approach investing the way Buffett does, based on the authors' firsthand knowledge of the secrets that have made Buffett the world's second wealthiest man

Notice that Buffett and Munger prefer companies which do not pay a dividend. This is because dividends lower retained earnings and therefore limit future growth. A company should only pay a dividend, according to the authors, if it has no better way of allocating the money, for example if a company has grown to the size of Apple (AAPL) and therefore has limited room for growth left. In a Forbes article, which the book quotes, Charlie Munger summarized Berkshire Hathaway's strategy as follows:

Region Breakdown

Please note that our article on this investment should not be considered to be a regular publication. But the book reveals even more tactics which hardly any other book about his strategy seems to cover: the importance of OPM, Other People's Money. And the one that we've got a good opportunity with, at long last, was Fevertree Drinks (LSE:FEVR). And that, you would have thought, should have gone into Buffettology, given the size of it. The reason we put it into Free Spirit and not Buffettology, was that Buffettology already owns Diageo (LSE:DGE), which is its sort of premium-brand business, and it also owns Barr (A G) (LSE:BAG), in a more sort-of general area so, we thought, well, Fever-Tree will go more naturally into Free Spirit. It doesn't have that exposure. So that's why it went in there. But in terms of Buffettology, as I say, the only thing that we've really done is and it's been very limited, is just top up one or two. We haven't put any new names, as they call it, into the portfolio. The main author – Mary Buffett is the former spouse of one of Warren Buffett’s sons. Nothing like making a little bread off the ex-father-in-law’s name…

Also, loyalty bonuses received by overseas investors, companies and charities are not required to be paid with the deduction of tax. Therefore, if you are an overseas investor, or you represent a company or charity please let us know if you would like your loyalty bonuses paid without the deduction of an amount equivalent to the basic rate tax. Keith Ashworth-Lord: Very much so. What you were seeing there was a contraction of price-to-earnings (P/E) multiples on the investee companies that we own. And just to prove that point, 23 of our 27 companies in 2022 reported earnings or trading statements that were in line with expectations or even better than expectations. But of those 27 companies, 22 of them finished the year with their share prices down and in some cases down quite a lot. So, I can't stress really too much that the operating performance of the companies is absolutely up to scratch. And it's been purely a market phenomenon. This rotation, so-called rotation into value, which has affected the multiples that the market accords our companies.Without some predictability of future earnings, any calculation of a future value is mere speculation, and speculation is an invitation to folly." Buffettology Keith Ashworth-Lord: Yes, it's a very disciplined process. We start off looking for businesses with an economic moat, which effectively means they've got barriers to entry and they've got pricing power. And the way we go about it is we analyse the growth potential of the companies in their markets, the growth potential of the markets themselves.