I previously shared the first class of assets.

Today we will look at the second class of assets—assets that have utility value but do not generate cash flow.

The essential difference between this and the first class of assets is the existence of "utility value," which leads to strong data support for investing in such varieties and reasonable logical deductions based on this data, thus allowing investors to have clear standards and measurable scales for such investments.

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

This type of asset has a clear utility value, therefore it has a clear supply and demand relationship, along with long-term accumulated data based on this supply and demand relationship, such as output, usage, cost price, market price, supply and demand gap, etc.

Based on this data, investors can likely determine through a mean reversion approach whether this type of asset might be undervalued or overvalued, and judge based on historical data:

If the price deviates too far from the mean, severely deviating from the supply and demand relationship, it is highly probable that the price will return to normal values in the near future.

At this time, the price difference between the severely deviated price and the normal mean is an opportunity for investors to seize.

Buffett occasionally participates in this type of asset.

A typical example is when he bought a large amount of silver during a time when the supply and demand relationship was tense but the price was severely underestimated, and he made a considerable profit by selling during the subsequent price normalization process.

He utilized this data and the logical deductions based on it.

I have mentioned in past articles the investment opportunities in oil and precious metals (platinum) are also based on the same reasoning.

However, the upper limit of such assets is also very obvious. According to historical patterns, in normal peacetime and harmonious societies, it is challenging for this type of asset to increase by 100 times within a span of 20-40 years.

Additionally, the investment opportunities in this type of asset do not come from the compounding of time but from price distortions caused by the market, leading to abnormal price differences. These price differences often last for a very short duration, sometimes only a few months, or a year, at most a few years, rarely lasting for 10 years or more.

Why is that?

Because they are essentially industrial products; once the price strays too far, market forces will naturally come into play:

Too much supply will lead to the elimination of producers; excessive demand will result in many new producers entering the market.

This will bring prices back to their normal mean within a certain period and will not allow this situation to persist for too long.

Therefore, this type of asset fundamentally does not meet the conditions to achieve a 100-fold increase within 20-40 years.

For investors participating in this type of asset, many times it is just a game, a bit of fun, getting involved when a good opportunity arises, but not actively seeking it out if there isn't one.

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

To seize such opportunities, investors need to pay long-term attention to these varieties and have a considerable understanding or judgment capability regarding their historical data and supply-demand relationships, thereby allowing them to step ahead in the rapidly changing market environment and discover opportunities that others have not noticed.

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

In summary, this type of asset does not inherently meet the conditions for increasing by 100 times, nor does it provide opportunities that the majority of ordinary people can participate in.

Therefore, it is unlikely that the vast majority of investors can achieve hundredfold returns from this type of asset.

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