We need to teach MM better

I was listening this morning to a Morgan Stanley investment banker say that in the early part of the decade, companies' stock prices got hammered if they didn't have enough leverage. Now they get hammered if they don't have sufficient cash to pay off any potential bullet loans.

We try to teach that financing should be irrelevant to business valuation (until the cost of financial distress comes into play). We try to teach that as one takes on more debt, the cost of equity should go up just enough to offset the benefit of debt's lower cost. We just must not teach it sufficiently well.