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 - Get Report) 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.