These Stocks Are the Key to Doubling Your Income

It may seem shocking today but back in the early 20^th century, investors did not like companies that retained their profits.

According to them, companies that paid out almost all their profits as dividends were more investment worthy than the ones that retained them.

It took none other than John Maynard Keynes to destroy this myth.

Keynes opined and rightly so that well-managed companies do not distribute their entire profits to the shareholders.

In good years, if not in all years, they retain a part of their profits and put them back into the business.

The retained profits shore up the already existing capital base of the company. It also helps it generate still higher profits on this new capital base and so on.

Effectively, the retained profit is used to fund the growth of the business and produce ever-greater profits.

Thus, while investors were slow to warm up to this new concept, the math of retaining and reinvesting earnings is now well understood.

There's another twist in the tale though. Not all retained earnings are created equal.

An example would help understand the difference better.

Imagine two companies, A and B, both earning Rs 30 m of profits each.

However, company A has earned these profits by investing Rs 300 m worth of capital. Company B has invested only Rs 100 m to generate the same profit.

Now, everything else remaining the same, if company A has to grow its profits by 10%, it will have to increase its capital base also by 10%.

Thus, all of the Rs 30 m it earned as profits will have to be reinvested back in the business.

Company B on the other hand, will have to deploy only an additional Rs 10 m as its capital base is much lower.

Thus, it will have an extra Rs 20 m available with itself. This can be distributed back to the shareholders or be reinvested in the business and grow much faster than 10%.

Another option for company B could be to reinvest Rs 20 m back and grow at a faster rate of 20%. There will still be Rs 10 m surplus to be distributed back to the shareholders.

We can see which company will be valued more in the stock market. It is indeed going to be company B. It's thrice as efficient as company A. It will also be valued thrice as much by the investors.

Another way of putting it is that every one rupee the company invests back in the business is worth three rupees in the eyes of the investors.

In contrast, every one rupee company A reinvests in the business will be worth the same one rupee in the eyes of the investors.

It is indeed the type B kind of companies that investors like Warren Buffett constantly hunt for.

And once they find these stocks trading at sensible prices, they go ahead and bet the farm on it.

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These are companies where every one rupee reinvested back in the business is worth much more than one rupee in the eyes of the investor.

These are the companies look for in my Automatic Income project.

I'm constantly on the lookout for these compounding machines so that my goal of doubling your income is achieved at the earliest.

As we saw, type B companies are the best of both worlds. They can grow faster than type A and still have some surplus cash left to be distributed to the shareholders.

Thus, it is these stocks you should be constantly on the lookout for. Even if you has to pay a slight premium for them, so be it.

In case you have a similar goal and are still looking for the right strategy to implement the same, you should check out my series of free video classes.

I have started sharing the details of this strategy as a part of my Automatic Income project, in a series of free video classes.

Sign up for my Automatic Income project here.

Warm regards,


Rahul Shah
Editor and Research Analyst, Profit Hunter

PS: Get all the details of my Automatic Income strategy by clicking here.