In the past few weeks, several friends have asked me if I have any ideas for alternative energy stocks. Although I follow the industry fairly closely, I replied that I do not. I don't think there's any doubt that alternative energy is the future, but as Anne Kates Smith wrote at Kiplinger.com, there are numerous questions surrounding exactly what that future will look like. Another thing for investors to remember: Counterintuitively, just because alternative energy is the future does not mean that investors will be able to make money with these stocks. Even though the internet was certainly the future in 2000, those stocks were a poor investment. Innovative technology does not always mean big profits. Warren Buffett (I used this same quote in a piece on internet video, an industry that suffers from many of the same questions) opined on this paradox, using the airline industry as an example:

Sizing all this up, I like to think that if I'd been at Kitty Hawk in 1903 when Orvile Wright took off, I would have been farsighted enough, and public-spirited enough -- I owed this to future capitalists -- to shoot him down. I mean, Karl Marx couldn't have done as much damage to capitalists as Orville did.

I won't dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: 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, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.