I previously shared the first category of assets.

Today we look at the second category of assets—assets with use value but do not generate cash flow.

The essential difference from the first category of assets lies in the presence of "use value," and it is this distinction that provides strong data support for investing in such varieties and reasonable logical deductions based on these data, allowing investors to have clear standards and measurable criteria for these types of investments.

Various commodities (such as copper, aluminum, silver, grain, oil, natural gas, etc.) belong to this category.

These assets, due to their clear use value, have a definite supply and demand relationship and long-term accumulated data based on this supply and demand relationship, such as output, consumption, cost price, market price, supply and demand gaps, etc.

Based on this data, investors can roughly judge whether these assets are likely undervalued or overvalued through the method of mean reversion, and based on historical data, determine:

Once prices deviate too far from the mean, seriously deviating from the supply and demand relationship, prices are likely to return to normal levels in the near future.

At this time, the price difference between the seriously deviated price and the normal mean is an opportunity that investors can seize.

Buffett occasionally participates in this category of assets.

The most typical case was when he bought a large amount of silver when the supply and demand relationship was quite tight but the price was severely undervalued, and he made a good profit by selling during the subsequent price normalization process.

He used this data and the logical deductions based on this data.

In previous articles, I have also mentioned investment opportunities in oil and precious metals (platinum) based on the same rationale.

However, the upper limit of such assets is also very obvious. According to historical patterns, in normal peacetime and stable societies, it is difficult for these assets to increase by 100 times within a 20-40 year period.

Moreover, the investment opportunities in this category of assets do not come from time compounding but rather from the abnormal price differences caused by market distortions. These price differences often last for a very short time, sometimes only a few months, or a year, at most a few years; it is rare for them to last for 10 years or even longer.

Why is that?

Because they are basically industrial products, and once prices deviate too much, market principles will naturally come into play:

Too much supply will eliminate producers; too much demand will bring in many new producers.

This will bring prices back to normal mean levels within a certain period of time, preventing this situation from lasting too long.

Therefore, this category of assets fundamentally does not meet the conditions for increasing by 100 times within a 20-40 year period.

For investors participating in these types of assets, many times it is just a game, for fun; when they see a good opportunity, they participate, but if not, they will not deliberately seek it out.

Munger jokingly described Buffett's buying of silver as a momentary whim, picking up a "cigarette butt."

To seize such opportunities, investors need to pay long-term attention to these types of products and have a considerable understanding or judgment ability regarding their past history and supply and demand data, allowing them to stay one step ahead in a rapidly changing market environment and discover opportunities that others have not yet noticed.

This is also very difficult for the vast majority of ordinary investors.

In summary, this category of assets neither has the conditions to achieve a 100-fold increase nor provides opportunities for the vast majority of ordinary people to participate.

Thus, the vast majority of investors cannot expect to achieve hundredfold returns from these types of assets.

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