I think debt matters (for long term investors).
Debt can be good and debt can be bad.
Christian has a great example of when debt is bad.
I have an example of the opposite.

I have an issue with blanket statements
and “rules of thumb” when it comes to investing.
I usually get myself in hot water (or deep in the red ink) when I use them.

Essentially the trick went as follows. Buy a cash cow company with a good balance sheet, but bad stock price due to lack of growth. When the company is bought make the company take on debt in the form of high yield bonds or some other derivative. Then get management to start cutting costs to support the new debt.

The private equity fund does well because they take an undervalued company take on debt that gives returns to the private equity fund. Once the bought company has increased its stock price the bought company is sold again for a profit.

These tricks played by private equity funds are hard to trace because the taken on debt does not kill the company as the company was a cash cow and thus can support the debt. EVEN though the company does not need to take on debt.

In this case, I agree with you. I really don’t think the average investor gives a crap whether a good company has debt or not. It’s not a deciding factor in buying a stock. If it’s a good company, they’ll take on debt knowing that for every $1 of debt they’ll make $2 in profit. Now, if you take a craptastic company that has tons of debt, well then you gotta get the hell out.

- Steve