Editor's note: Don't overlook the value of "unproductive" assets...

Diversifying your portfolio is one of the best methods for growing and preserving wealth – no matter what the economy is doing. That's why Extreme Value editor Dan Ferris says this aspect of a sound investment strategy is a key way to prepare for the "beginning of the end" of the bull market.

And you don't have to fully understand why an asset is popular to benefit from it... In fact, according to Dan, many so-called "useless" investments – like bitcoin and gold – can offer lasting rewards...

Today's Masters Series is a continuation of the February 26 Digest. In it, Dan details why he expects bitcoin to do well despite recent volatility... explains what society's love of luxury tells us about gold and bitcoin... and reveals why gold will always be a store of value...

Why We'll Always Find Value in 'Useless Baubles'

By Dan Ferris, editor, Extreme Value

I'm not in the predictions business...

That's a foolish game to play. Instead, longtime Digest readers know that I prefer to say, "Prepare, don't predict."

As I explained yesterday, I believe the "Beginning of the End" of the bull market has arrived. And if you haven't already, it's critical that you take steps to prepare...

You can do that by holding a truly diversified portfolio of stocks, bonds, plenty of cash (at least 20% of the total portfolio), gold, silver... and if you like, a little bitcoin, too. Add other stores of value – like real estate, and maybe art or collectibles (if you understand them well enough).

By diversifying your holdings, you should be able to grow and preserve your wealth indefinitely for decades. And two of the most talked-about assets are bitcoin and gold...

Given the world's obsession with bitcoin right now, I can't go any further without addressing what must be on everyone's minds lately... the cryptocurrency's recent volatility.

Bitcoin hit an all-time high of roughly $65,000 in mid-April. But then, its value dropped... It plunged more than 50% to less than $30,000 in about three months. However, since late July, it has been climbing again... It's now back up to around $47,000 as we go to press.

Here's an important thing to remember about bitcoin...

As my friend, investor, and physician Dr. Jeff Ross of Vailshire Capital Management likes to say, bitcoin is not a stock or a business. But the thing is... that's still OK. As I've said before, it still has a valuable place in your portfolio. And I believe it'll prove to be worth it over the long run.

I was reminded of Jeff's comment earlier this year, while reading listener e-mails for an episode of the Stansberry Investor Hour podcast...

A listener asked about 11 bitcoin wallets known to have held 273,182 bitcoin. What if they all decided to sell at once? He likened the situation to a large shareholder selling a big block of stock... And he seemed worried that it represented real risk for the rest of us bitcoin holders.

First of all, the world currently has about 18.8 million bitcoins. Those 11 wallet holders only hold about 1.5% of all bitcoins in existence right now. That isn't a big chunk of the market.

I suppose if they all sold their entire stakes at precisely the same moment, you might see some impact on the price in the short term... But what would happen after that?

No one can predict the future, so it's impossible to say for sure. However, these 11 holders wouldn't have another 273,182 bitcoins to sell after that. So in my mind... I believe it's fair to say that the event would have zero long-term implications for bitcoin's viability.

The listener's concern is an "apples to oranges" comparison, anyway... You can't really compare big bitcoin holders to large shareholders of a company.

Let's say that a company has been around a long time... and its founding shareholder and CEO owns 30% of the company's stock. If he suddenly sold a big chunk of his stock and resigned, the move would rattle investors. The uncertainty would likely cause a big sell-off.

But on the flip side, those 11 wallet holders don't control bitcoin... Unlike our company example, they're not responsible for day-to-day operations. They don't have their hands on the reins of bitcoin the way a founding CEO has his hands on the reins of a company.

In the end, any or all of those 11 wallet holders selling their bitcoin stakes would be less likely taken as a statement about the crypto's viability as a store of value than if that founding CEO sold a chunk of his stock and moved on.

So I'm not worried about bitcoin at all over the long run. I believe it has a future in our society for the long haul. That's why I recommend owning some.

My colleague and Crypto Capital editor Eric Wade likes to say that holding bitcoin gets you a place in line for whatever it will become... And if you believe more and more folks will want to queue up with you, you also must believe it will push the price higher over the long term.

But I expect bitcoin to keep trading with a lot of volatility... It's a roughly 13-year-old store of value in a world where value has been stored in real estate, gold, silver, and art for millennia.

And it's far less tangible than those competing stores of value, so it makes sense that its adoption would be a volatile affair. Investors get comfortable one day... uncomfortable the next... trying all the while to figure out how much to own and just how to think about it.

In the end, most of us are still wondering, "What is it exactly and why should I own it?"

I personally don't believe anybody really knows the answer to that question right now, but I also believe that investors can't afford to ignore bitcoin... the same way they couldn't afford to ignore the Internet in the 1990s, whether they completely understood it or not.

I'm still as skeptical of people who say bitcoin will be a slam-dunk multibagger holding in two years as I am of those folks who say that it's valueless and worthless. But just because we don't fully understand how its future will play out doesn't mean we should ignore it.

Throughout history, some folks have looked at gold as similarly valueless and worthless...

In 1924, English economist John Maynard Keynes called the gold standard a "barbarous relic"... meaning that it was effectively out of fashion as money and no longer a valid store of value.

And in the 2011 letter to shareholders of his holding company Berkshire Hathaway (BRK-B), famed investor Warren Buffett put gold in the same category as tulip bulbs. As he wrote...

[These are] assets that will never produce anything, but that are purchased in the buyer's hope that someone else – who also knows that the assets will be forever unproductive – will pay more for them in the future.

But the emphasis on gold's utility is, I would've thought, rather obviously misplaced. In fact, it is gold's status as a thing of beauty that makes it such an excellent store of value...

Human beings can't be human without such beautiful things.

Longshoreman philosopher Eric Hoffer described this idea well in his 1971 book, First Things, Last Things. (Every Hoffer book is a must-read, by the way.) As he wrote...

Man is a luxury-loving animal. Take away play, fancies, and luxuries, and you will turn man into a dull, sluggish creature, barely energetic enough to obtain a bare subsistence. A society becomes stagnant when its people are too rational or too serious to be tempted by baubles.

But Hoffer didn't go far enough... We're not merely "tempted by baubles" (like gold). Humans require baubles and relics – barbarous and otherwise – to be fully human.

Buffett thinks that equating gold with tulips as an unproductive asset, valuable only to greater fools, indicates its limited utility as a store of value. But he has it exactly backward... It's a wonderful store of value because it is an unproductive object of beauty.

We will never stop wanting gold.

Buffett seems to lack a true understanding of human nature beyond what is necessary to succeed in business and investing. His 2011 screed against gold demonstrates that clearly...

Buffett criticized the metal's utility and compared the purchase of all the gold in the world (worth $9.6 trillion back then) to an identical amount invested in all the cropland in the U.S., plus 16 ExxonMobils (XOM), and $1 trillion in cash. He asked who would choose gold over the latter collection of assets, implying it would be really stupid to choose gold.

Buffett is right in his rationale, of course. But it's important to realize... those are not the choices that anyone is presented with. And as a result, the argument works against him.

In real life, humans want to own productive assets like cropland and stocks for one reason...

They want to have the means to purchase those other things that make them feel most human – like Ferraris, vintage guitars, and the ultimate useless bauble, an ounce of gold.

Hoffer's quote says everything you need to know about gold (and also gives you some hints about the future of bitcoin, which has been referred to as "digital gold").

In the 2011 shareholder letter, Buffett – the so-called "Oracle of Omaha" – reasoned that a century later, the 400 million acres of land will have produced "staggering amounts" of crops and the ExxonMobils (all 16 of them) will have generated "trillions of dollars" in value. But the gold will "be unchanged in size and still incapable of producing anything."

First of all, the fact that gold won't change over centuries is good... Humans need things that never change. They can't live without them. Otherwise, we'd all be totally disoriented just by trying to live moment to moment. And most importantly, a store of value must not change (too much) over time... Gold is arguably the best store of value known to man for this reason alone.

Then, Buffett spit in the eye of humanity and showed us how poorly he understands both gold and human nature when he quipped, "You can fondle the cube, but it will not respond."

The inability of gold to produce anything is why we love to hold and fondle it...

Anybody who tells me with a straight face that gold doesn't instantly attract his attention is either lying or impaired in some way. Gold is an object we desire for its own sake... the same way we desire works of fine art. They don't produce anything, either... or do they?

Gold and artwork produce something that is useful only to human beings because only humans beings value inanimate objects for the pure pleasure of looking at them... or "fondling" them, as Buffett might say.

The utility is in what we feel when we gaze at these objects and hold them in our hands. By having no use, and by gold being shiny and rare, it fires up our imagination.

I've wondered lately if visual art and music got so utterly weird – and in many cases, impossible to enjoy – in the early 20th century because that was also when the gold standard came under attack, as European nations abandoned it to finance World War I.

In other words, the minute we gave up on an unproductive, inanimate object of mesmerizing beauty as the standard of value so we could pursue our mutual mass destruction... we descended into chaos.

Coincidence? Maybe. I really don't know, but it feels right to me.

Maybe you don't think I'm countering Buffett's criticism of gold's lack of productivity well enough... or at least, not well enough to justify putting 15% of your wealth into precious metals. If that's the case, let's agree to disagree. But I want to make sure you see my point...

I'm not telling you Buffett is wrong about gold being unproductive. I'm saying that its lack of productivity to match farmland and one of the world's biggest oil companies is why he's wrong about it... and why gold is so perfect as a long-term store of value for humans.

Part of Buffett's mistake is to view us as being too much like other animals... No other animal in the world has use for unproductive inanimate objects the way that we do.

Go into the average American home... It's loaded with art, knickknacks, keepsakes, and all types of useless objects owned and displayed for the pure pleasure of doing so.

That is why gold will never disappear as a store of value.

And yes, I know Buffett's company owns jewelry stores... but that also supports my argument more than his. He recognizes the value of these jewelry businesses, but he misses the meaning behind the deep need that humans have to possess gold... without which he couldn't make a penny from jewelry!

I mean, the guy has all the answers right in front of him... and he still doesn't get it.

Neither does anyone who says gold is worthless except as a speculation based on some Buffett-like "greater fool" theory. Gold wouldn't still be in use as an important store of value after 5,000 years if that idea were true.

Anything we've done for 5,000 years must be deeply embedded in our nature – for better or worse...

We want gold not because we're easily duped. That's too cynical and shallow.

We want – and need – gold because we love beautiful, useless baubles. It's an immutable part of our nature that we will never, ever get away from. And therefore, we must embrace and feed it to an appropriate extent.

Good investing,

Dan Ferris

Editor's note: No one can predict what will happen in the markets tomorrow, next month, or next year. But you don't need to... You only need to be prepared for what could happen.

Dan believes you'll be able to sleep much better at night if you maintain a truly diversified portfolio. By that, he's talking about the proper mix of stocks, bonds, plenty of cash, gold, silver, and some bitcoin (and other stores of value, like real estate and art, if you'd like).

And when it comes to stocks, Dan recently identified an incredible opportunity for his subscribers...

It's the smallest company he has recommended in seven years. It has its hands in a number of industries – including automotive, energy, and telecommunications. And best of all, his research indicates that it could return 200% or more over the next couple of years.

So before you do anything else today, we encourage you to learn all about Dan's proven system of picking winners. He just put together a brand-new presentation with all the details. Get started right here.