Previously, I shared the first category of assets.
Today, let's look at the second category of assets—those with utility value but do not generate cash flow.
The fundamental difference between these and the first category lies in their "utility value." This distinction allows investments in such assets to be strongly supported by data and logical deductions based on this data, giving investors clear standards and measurable criteria for investment.
Various commodities (such as copper, aluminum, silver, food, oil, natural gas, etc.) belong to this category.
Because these assets have a clear utility value, there is a clear supply and demand relationship and long-term accumulated data based on this relationship, such as production, consumption, cost price, market price, supply-demand gap, and so on.
Based on this data, investors can roughly use mean reversion methods to determine whether these assets might be undervalued or overvalued and, according to historical data, judge:
Once prices deviate too far from the mean or severely from supply and demand, there is a high probability that they will return to normal values in the near future.
At this point, the price difference between the severely deviated price and the normal mean is the opportunity that investors can seize.
Buffett occasionally participates in this type of asset.
The most typical example is when he bought a large amount of silver during a time when silver's supply and demand were extremely tight but the price was severely undervalued, then sold as the price returned to normal, earning considerable profit.
He used precisely this data and the logical deductions based on it.
Previously, I’ve mentioned investment opportunities in oil and precious metals (platinum) in articles, based on the same rationale.
But the ceiling for this kind of asset is also quite obvious. According to historical patterns, in normal times of peace and stable society, it's very hard for these assets to rise 100-fold over 20-40 years.
Additionally, the investment opportunities for this category of assets do not come from compounded returns over time, but from abnormal price differences caused by market distortions. These price differences are usually very short-lived, sometimes only a few months or a year, at most a few years; it’s rare for them to last for a decade or even longer.
Why is that?
Because they are basically industrial products. Once prices deviate too much, market forces naturally come into play:
If supply is too high, the market eliminates producers; if demand surges, many producers rush in.
This brings prices back to normal averages in a period of time, preventing such situations from lasting too long.
So these assets essentially lack the conditions for achieving a 100-fold increase over 20-40 years.
Investors who participate in such assets are often just playing the game for fun; if a good opportunity arises, they'll get involved, but otherwise they won't actively seek it out.
Munger jokingly described Buffett's silver purchase as a spur-of-the-moment action, picking up a "cigarette butt."
To seize such opportunities, investors need to pay long-term attention to these types of assets and have considerable knowledge or judgment regarding their history and supply-demand data, thus being able to spot opportunities in the fast-changing market before others do.
This is extremely difficult for the vast majority of ordinary investors.
In summary, these assets neither possess the conditions for a hundredfold rise nor offer opportunities for the vast majority of ordinary people to participate.
Therefore, most investors are unlikely to achieve hundredfold returns from these assets.
