People feel about twice as much pain from a financial loss as they do pleasure from an equivalent gain, according to behavioral psychologists. Therefore, investors need to watch out for the powerful cognitive bias that feeling produces, called loss aversion.
But there's another mental quirk that looms just as large during periods like what's occurred over the last six months in the stock market: Fear of having missed out on spiking gains. Call it rally envy.
Maybe your portfolio is beating the market's double-digit rise so far this year, but you still sat out of the 800% surge that Overstock shareholders enjoyed. Or you totally missed NVIDIA's 100% spike. No, it's not rational, but portfolio comparisons like these can still sting.
Yet it's future returns that really matter to investors. So with that focus in mind, let's look at two other stocks, Netflix (NFLX 0.33%) and Domino's (DPZ -0.92%), which have soared over the last few years but are primed for more significant gains.
Netflix can move the needle
Netflix was a major winner from pandemic-related changes to global consumer behavior. The extra stay-at-home time added a premium on digital entertainment and put the streaming-video giant on track for 34 million customer additions this year, compared to 28 million last year and the record 29 million new-member mark the company set in 2018.
But there's a lot more to like about this stock than just its long membership-growth runway. One reason is that Netflix investors can expect to see rising revenue per user, thanks to those steady monthly fee increases. CEO Reed Hastings and his team are careful to raise prices only after winning more streamer engagement, which they define as the number of average hours watched each month.
It's impossible to predict exactly where that growth approach will end. But the company can meaningfully add to its value in TV watchers' lives over the next few years, just as it has since 2015. Average revenue per user landed at $8.15 per month that year compared to $10.82 at the start of 2020.
Meanwhile, Netflix will continue gaining profitability and marching toward positive cash flow as its long-term original content wins start showing up with more force on the balance sheet. That's a formula for impressive investor gains from here.
Domino's isn't done delivering
Domino's has essentially no competitive advantage when it comes to the assembly of its core product. The simple pairing of dough, sauce, cheese, and toppings produces a staple offering on thousands of restaurant menus around the country. Pizza has been popular for more than a century.
Yet the delivery giant has managed to gain market share at a phenomenal clip. In 2009, Domino's accounted for just under 20% of the U.S. industry. Last year, that figure stood at a whopping 35%.
The chain has to be doing many things right to earn those victories, including leading the industry in areas like tech innovation, fulfillment speed, and customer satisfaction. Those assets imply further strong gains for investors from here, even if growth will be rocky in its international segment.
Shareholders should be even more excited about Domino's prime position as a go-to food delivery platform. The chain can win more growth by leading that growing niche, but also by extending its reach into other areas like its recent hit chicken-wing launch.
Its efficiency can't be easily matched by rivals, thanks to a tiny store footprint and the chain's high sales volumes. Those assets allow Domino's to operate several locations in a single neighborhood, which works to keep competitors out while increasing customer satisfaction by driving down delivery times.
Make your move
Buying a great growth business like Domino's or Netflix doesn't protect you against short-term losses or guarantee that you'll participate in another decade-long rally, but it gives you a chance at impressive returns over the long term. The odds are good you'll look back at such a purchase in five years and be happy with your choice, even if your returns would have been even bigger if you had bought the stock earlier.