Does the thought of tracking down high-growth companies that flout conventional wisdom get your pulse racing? Are you on the lookout for the next great product or service? Do you know how to identify trailblazers like Wal-Mart and Dell that will change their industry forever?

If not, you should. Being alert for the Next Big Thing can be a hugely profitable approach to investing -- one that David Gardner has employed successfully many times over in his Motley Fool Rule Breakers newsletter. The service spots innovators before the broader market catches on to them.

However, it wouldn't be realistic -- or honest -- to say that every company that innovates can actually pull it off. In fact, many companies with great innovations screwed up royally somewhere along the way. Some of these companies are even household names. In order to be a superior growth investor, you need to know why these companies went awry and how to keep future failures far away from your portfolio.

The agony of defeat
Time Warner's (NYSE:TWX) AOL is an obvious example of a formerly high-profile innovator that faltered. And anyone who followed Apple Computer (NASDAQ:AAPL) prior to the iPod knows that the company made incredible computers, but missed the market-share boat on many occasions.

Or take Xerox (NYSE:XRX). Through its legendary Palo Alto Research Center (better known as PARC), the company invented the personal computer, with many of the features that are so ubiquitous now -- GUI (graphical user interface), the mouse, and WYSIWYG (what you see is what you get) text to name a few. But how many of us ever owned a Xerox computer? (Apple famously paid Xerox a mere million bucks to have its engineers tour PARC in the early '80s, and subsequently stuffed many of the inventions listed above into the first-generation Macintosh.)

Another well-known invention that was dreamed up at PARC and never fully capitalized on by Xerox was Ethernet. Whoops.

Then there's IBM (NYSE:IBM). It spearheaded the PC market in its infancy, launching the machine that would successfully compete against Apple's, but in the years that followed, it let competitors erode its moat. The IBM era of PC mastery officially ended recently when it sold its PC operations to Chinese firm Lenovo.

It's frightening to think that formerly great innovators like these -- all household names -- seriously botched some of their biggest opportunities. So how could an investor have known to stay away?

Separate the breakers from the fakers
Here at Rule Breakers, we're the first to admit that while a recommendation may have the vision, the innovation, the huge marketplace, and every other indicator of excellence, it could still miss the mark. Indeed, our strategy requires that investors accept that not all picks will be winners -- though we also expect that the winners will erase any memory of the losers.

But don't misunderstand me. We want to avoid all losers, and we use yesterday's lessons to spot today's warning signs. Not only do we have a team of smart writers and analysts thinking about our 500 watch-list companies obsessively, but we've also got a very involved, savvy community of members who argue the virtues -- or vices -- of Breaker stocks and Breakers-to-be. All these smart folks are watching for the signs of doom:

1. Strong or stealth competition. Look beyond the obvious. For example, government and university research facilities have sunk many enterprises. Celera (NYSE:CRA) -- a drug discovery firm -- is one example of a company that may not know where its real competition is lurking.

2. Failure to evolve. Take former tech darling Iomega (NYSE:IOM) -- maker of those nifty Zip drives. The drives were a real innovation that made the company successful ... until times changed. Hard drive space on PCs increased, along with the ability to burn massive amounts of data onto skinny CDs and DVDs. Iomega had no response, and the market dumped the stock

3. Easily copied products. Don't pour your hard-earned dollars into technologies that have no moat. Just consider how many people who claim to own a TiVo (NASDAQ:TIVO) actually have a DVR from their cable company. Though the technology has taken off, TiVo shareholders have not benefited.

Foolish final thoughts
These are a few suggestions for keeping duds off your portfolio, but that's only one step toward beating the market. You also have to find the winners. The Rule Breakers team can help you out there as well. If you're looking for recommendations of high-growth stock picks and a community of thousands that will help you separate the fakers from the Breakers, take a no-obligation, 30-day free trial. Let's beat the market together.

Alyce Lomax does not own shares of any of the companies mentioned. Time Warner and TiVo are Motley Fool Stock Advisor picks. The Fool has a disclosure policy.