I shared the first category of assets earlier.

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

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

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

These assets have clear utility value, so there is a clear supply and demand relationship and long-term accumulated data based on this relationship, such as output, usage, cost price, market price, supply-demand gap, etc.

Based on this data, investors can generally use the method of mean reversion to determine whether this type of asset may be undervalued or overvalued, and judge based on historical data:

Once the price deviates too far from the mean, severely deviating from the supply-demand relationship, the price is very likely to 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 that investors can grasp.

Occasionally, Buffett participates in this type of asset.

The most typical case is when he bought a large amount of silver when the supply-demand relationship was very tight but the price was severely underestimated, and he sold it later as the price returned to normal, making quite a bit of money.

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

I have previously mentioned investment opportunities in oil and precious metals (platinum) based on the same reasoning.

However, the upper limit of such assets is also very clear. According to historical trends, in normal peaceful times and a politically stable society, it is very difficult for these types of assets to increase by 100 times in 20-40 years.

Moreover, the investment opportunities in this type of asset do not come from the compounding of time, but from the abnormal price difference caused by market distortion. Such price differences often last a very short time, sometimes only a few months, or a year, at most a few years—it is rare for them to persist for 10 years or even longer.

Why?

Because they are basically industrial products; once the price deviates too much, market mechanisms will naturally come into play:

If supply is too high, the market will eliminate producers; if demand is too thriving, many producers will rush into the market.

This will lead to prices returning to normal averages within a period of time, and will not allow this situation to persist too long.

Therefore, this type of asset generally does not have the conditions to achieve a 100-fold increase in 20-40 years.

Investors participating in such assets are often just playing a game, indulging for fun; when they see good opportunities, they participate; if not, they will not actively seek them out.

Munger jokingly described Buffett buying silver as a momentary impulse, picking up a "cigarette butt."

To seize these opportunities, investors need to pay long-term attention to such varieties and have a considerable understanding or judgment ability regarding their past history and supply-demand relationship data, thus being able to step ahead in the 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 type of asset does not have the conditions to increase by 100 times, nor does it provide opportunities for the vast majority of ordinary people to participate.

Therefore, the vast majority of investors cannot achieve a hundredfold return from these types of assets.

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