Last week, my friend Nate* texted me this:
I love these questions, especially from friends, but I have no opinions about Sweetgreen as an investment opportunity. I'm not a fun person to ask. I have sobering, unromantic feeling about picking individual stocks. He followed with a great description of why Sweetgreen appears to be a fabulous company:
I agreed. Up until a few years ago when I moved to Austin, I lived in Los Angeles. I did L.A. things, like spending $16 on little grain salad bowls. I enjoyed them. It seems like a great business.
But one thing I know about great businesses is that they tend to have high market capitalizations. Owning meaningful portions of these companies is not cheap.
Here is something that can be hard to swallow:
When it comes to an investment opportunity, it doesn't matter whether you're a good business or not –– what matters is whether you're a good business or not, AND your price.
That's why you might buy a decent wine, that you don't even love, if it's half off, but you wouldn't take your perfect, once-in-a-lifetime vacation for $25,000. Price changes everything.
I snapped this picture, and sent it to Nate:
You'll see that the iPhone app actually gives you "Mkt Cap" which is highlighted here. You can skip the step of finding out how many shares exist (...and then multiplying it by price-per-share). They've done the math for you in the background.
Sweetgreen is valued at an astounding $3.632 BILLION.
That's the pie. The best question we can ask is not, Should I put $1,000 into this great business? -- but rather, Does this great business justify that a $1,000 investment will only buy me .0000275% of a company? That percentage is the $1,000 purchase price divided by $3,632,000,000.
When it comes to knowing what we're getting, for what we're paying...
I bought $1,000 worth of Sweetgreen stock at $34/share tells us nothing.
I bought .0000275% of the entire company of Sweetgreen, for $1,000 tell us everything.
End.
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*Nate didn't actually care about being anonymous. He's a wonderfully talented artist, take a look.