I previously shared the first category of assets.

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

The essential difference with the first category of assets is the presence of "utility value," and it is this distinction that provides strong data support for investing in this type of asset, along with logical reasoning based on these data, allowing investors to have clear standards and measurable metrics for such investments.

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

Because this type of asset has clear utility value, it also has a defined supply and demand relationship, along with 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 judge whether these assets might be undervalued or overvalued through the method of mean reversion and assess based on historical data:

If the price deviates too far from the mean, severely misaligning with the supply-demand relationship, it is highly likely 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 that investors can seize.

Buffett occasionally participates in this type of asset.

A typical case is when he bought a large amount of silver during a period when the supply-demand relationship was quite tight but the price was severely undervalued, and then sold during the subsequent price normalization process, earning a significant profit.

He relied on this data and the logical reasoning based on it.

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

However, the upper limit of these assets is also quite evident; based on historical patterns, during normal and peaceful times in a harmonious society, it is difficult for this type of asset to achieve a 100-fold increase in value over 20-40 years.

Moreover, the investment opportunities in these assets do not arise from the compounding of time, but from market distortions that lead to abnormal price discrepancies. These discrepancies often last only a short time—sometimes just a few months, or a year, at most a few years; it is rare for them to last for a decade or longer.

Why is that?

Because they are essentially industrial products, and once the price deviates too much, market forces will naturally come into play:

If there is too much supply, the market will eliminate producers; if demand is too strong, many producers will rush in.

This leads to a normalization of prices for a period of time, preventing the situation from lasting too long.

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

Investors participating in this type of asset are often just playing a game, having some fun; they'll jump in when they see a good opportunity, but they won't deliberately seek it out if there isn't one.

Munger jokingly described Buffett's purchase of silver as a moment of inspiration when he picked up a "cigarette butt."

To seize such opportunities, investors need to closely monitor these types of assets over the long term and have a considerable understanding or judgment ability regarding their historical data and supply-demand relationships, thus being able to identify opportunities that others have not noticed in a rapidly changing market environment.

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

In summary, this type of asset neither possesses the conditions for a 100-fold increase in value nor provides opportunities for the vast majority of ordinary people to participate.

Therefore, the vast majority of investors cannot achieve hundredfold returns from this type of asset.

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