NEW YORK ( TheStreet) -- Warren Buffett once said, "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow but, rather, determining the competitive advantage of any given company and how long it can maintain that advantage.
In other words, Buffett believes in investing in monopolies. While these are hard to come by, there are some companies, such as Sirius XM (XM), the only satellite radio company in the U.S., that come pretty darn close.
However, in situations where there are no monopolies to be found, investors can always rely on some key ingredients of a successful company. Not necessarily in this order, these components include innovation, strategic marketing, staying ahead of the competition and managing costs.
Oh, and there's the most important factor of all -- getting as much money as you possibly can out of the customers you have.There are some companies that do some of these well and there are others such as Apple (AAPL) that excel. However, what do you do when you come to a point and realize that a company in which you have invested has ceased to excel at any of these five components, maybe not entirely but enough that it has become noticeable?
The Effective DeliveryThis is where streaming media giant Netflix (NFLX) finds itself. In an odd sort of way, the company is both a titan and an underdog at the same time, which makes it a challenge in determining how to root for it. Netflix reminds me a lot of Research in Motion (RIMM), except with better management.
While RIM essentially took Palm by the hand and escorted it out of business. Netflix took a more distant approach and wiped out Blockbuster with a postage stamp and its red envelopes. The company pioneered an industry that is now changing. Netflix was able to impose its will and capture the imagination of movie lovers everywhere to the point where it became an embarrassment to be seen Friday nights at your local Blockbuster or Movie Gallery. It was successful in changing the game by creating a "room service industry" for movies.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV