In this episode of Market Foolery, Chris Hill and Jason Moser take a look at the latest developments at Twitter (NYSE:TWTR) and American Express (NYSE:AXP). Elliott Management feels Jack Dorsey should go as the CEO of Twitter. Find out what's behind their concern and how Twitter has performed under him.

Next, we look at the story of how American Express' sales staff misled small-business owners to increase the number of card signups.

Finally, we answer a listener's question. Find out why it's unwise to borrow money to buy stocks.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 2, 2020.

Chris Hill: It's Monday, March 2. Welcome to Market Foolery. I'm Chris Hill. With me in studio, it's belligerent market timer Jason Moser. Thanks for being here.

Jason Moser: I'm very, very happy to be here. Thank you.

Hill: Right before we start recording, you checked the market, and you were audibly displeased that the market was up today because you were hoping to do a little more bargain hunting.

Moser: Well. Maybe. Not even, really, personally for myself. I just feel like, we've got this market that's all over the place, can't really make up its mind. You know, I was thinking about this earlier today, we are at a point where, I think, people are still freaking out because of the coronavirus stuff. And understandably so. But I feel like that we need to get to a place where we're OK with understanding this exists and how we're going to live in the world. And as people, going forward, managing in a world where this coronavirus COVID-19 exists. And maybe once we get there, that's when the market starts to calm down a little bit.

And given today's buying that's going on -- that's not a calm market, that's still not a sensible move. I just, kind of, want to see a little bit more rationality.

Hill: Well, we're going to talk about this a little bit more because we got a great email question about buying opportunities in the market and how to fund them. But we're going to start with two different companies that are in the spotlight for two very different reasons. And we'll start with Twitter, because shares of Twitter are up about 7% this morning because Elliott Management -- which is a fund company that has somewhere to the tune of $35 billion under management -- Elliott Management has taken a $1 billion stake in Twitter. They've nominated four people for the board of directors. And they're pretty clear about the fact that they want Jack Dorsey gone.

Moser: Yeah, I think, at least, you understand fully where they're coming from. And I don't know that I necessarily agree with what they're demanding, but with that said, I fully understand where they're coming from. I think anytime you have a CEO that is serving two roles, you know, a CEO that's working at two different companies, you have to ask the question of are they stretched thin? And you could argue that maybe Jack Dorsey is stretched thin. I don't know, I mean --

Hill: You can argue that if you're a Twitter shareholder; if you're a Square shareholder, you're looking at your returns with Jack Dorsey as CEO, and you're like, "Well, I'm good, this is great. Let's keep this going."

Moser: Yes. Yeah, that's a good point. Now, I mean, I do think, though, it's also important to note that the stock performance isn't always necessarily indicative of what the business is doing. And so let's look at some of the numbers, at least, to shed a little bit more light here. When Dorsey was officially named CEO again back in October of 2015. It was October 5, 2015. On October 4, Twitter share price closed at $26.31. So today, obviously, considerably higher, the stock is up essentially 35% since he came back on. That's pretty good. He's taken them from what was a $2.2 billion-revenue company and no profits to now trailing-12-month revenue of $3.5 billion and fully profitable.

He came in and said one of his primary goals was to bring that stock-based compensation down. One, we were very critical, I mean, everybody was, rightly so. That was a 30%, 35%, 40% number at one point. Way out of line with other peers in the space. He made that a point of focus. He's brought it down to that 10% range now, like he said he would do. So it has not been a bad stretch.

If you are a Twitter shareholder, considering where the business was before he came back, I think this is absolutely a better business today than it was then.

Given Twitter's resilience as a platform, it's been very difficult to disrupt. I mean, it's not like Facebook can go in there and just build something that copies it. It's certainly understandable that investors want more, and I think that's probably where most of this is coming from.

Hill: And as we've talked about before, Twitter is set up for what should be a good year in terms of advertising revenue, between the Olympics -- assuming the Summer Olympics are still going to happen -- the presidential election. This is one of those stories that, I think, make headlines today for the obvious reasons, both, in terms of the news coming out of Elliott Management, their demands and the stock popping. But I think it's also a story that bears watching as the year plays out, because whatever happens in their next quarter, if they have a stumble to any significant degree, I think that helps make the case that Elliott Management is making that maybe Dorsey should ride off into the sunset.

Moser: Yeah, I do think that Twitter, given the nature of its platform and given the audience that it has, I think that they're always set up for success. I feel like there's always an event or something, a catalyst, that should serve the business well, that they should be able to capitalize on. Whether it's the World Cup or the Olympics or an election, that stuff is going on all the time, and that is Twitter's core audience.

So I do feel like, as a Twitter user, the platform has gotten better. It could be more. I certainly can see that. I do feel like they've been spinning their wheels, maybe trying to figure out exactly what direction to go in. They were making big investments in video. And video has become more a part of it. I don't know how much that really contributes to the bottom-line form at this point. It's a better service today than it was years ago. But I do feel like it probably hasn't iterated or evolved as much.

The other thing to keep in mind too, you know, when we talk about investors coming in to go activists, to try to get a leadership change in motion, I kind of look at that like selling a stock. And what I mean is, it's fine if you've identified some challenges and maybe you want to cut bait with that thing and move on, but you got to make sure you get it right on the other side; you know what I mean?

Hill: To me, I went straight to a sports analogy. It's people who say, "We got to fire the coach of that team." It's like, "Okay. Who do you think should be the coach of that team?"

Moser: Exactly. We got to fill in the role.

Hill: Because that was one of the things I thought when I was reading through this story. I was like, "Okay. Do they have somebody in mind? And if they do, Who is it? And let's evaluate the relative merits of that person."

Moser: Yeah, exactly, because just because you feel like you've made a good decision on the front end there. And I mean, selling a stock, sometimes that's the right thing to do, and sometimes it turns out to bite you in the rear. But, you know, I mean, if you're going to sell a stock and you want to put that money to work in another name. Well, you better make sure that you pick a good one, because nothing sucks like selling a loser and then investing in another bigger, fatter loser. [laughs]

And I'm not calling Dorsey a loser either. I'm a big fan of Jack Dorsey. I am OK with him serving the role as the CEO at Square and Twitter. It doesn't matter, because I think he's a good person, and I think he's generally done a lot of what he said he wanted to do. Now, maybe he needs to bring some more talent in there to help, kind of, get the innovation engine working at Twitter, to appease folks like Elliott Management; but please, don't read into this. I still like Jack.

Hill: Well, and I think it would be very difficult to make the case. Look, we've talked about any number of companies over the years where the CEO is an absolute train wreck and they are in a gots-to-go situation, and those are the situations where it doesn't matter who the next coach is, the next CEO is going to be better than this person. I don't think that's the case with Dorsey. For whatever you think of the stock performance or the business, it's very difficult, I think, to make the case that Dorsey is that kind of train wreck and that anybody would be better than him.

Moser: Yeah, I totally agree. I don't know that there is an obvious choice to bring in either. I think one of the benefits of bringing him back in there as CEO was that it created this green-light environment where people felt empowered to try new things. I think that before he came back, there was this vision or this view that Twitter, as it was, was sacred and you can't get in there and mix things up a little bit. And he came in there, and lo and behold, he said, "Hey! let's shake this thing up and see what we can really do with it." Maybe he hasn't shaken things up enough. I mean, again, I don't know that it's materially that different of a platform today than it was five years ago. I think it's more robust, it's more enjoyable, but, you know, it's also got its problems, and they clearly are working on that.

But I do think any time you have an individual serving as CEO of two different companies, they are going to be held more so under the microscope; and that's deserved. I think that makes sense. I don't know that I would be targeting Jack necessarily at Twitter, because I feel like maybe Twitter's limitations are far beyond what maybe any CEO could really do. I think the nature of the platform, it's a more difficult social platform to monetize given its free-flowing and quick nature; you have to acknowledge that.

Hill: The Wall Street Journal has an exclusive story today about American Express, and it's really set against the backdrop of 2016, when Costco (NASDAQ:COST) and American Express split ways. For anyone who shopped at Costco, they know that American Express was the Costco card of choice, that ended in 2016. And in the wake of that, the Journal lays out the facts that some members of American Express' sales staff misled small-business owners to increase the number of card signups that they were getting.

And there are a few threads I want to pull here, the first is, I think at this point we don't know if this is a few bad apples or the tip of the iceberg. Of course, the spokesperson for American Express is laying out the numbers like, "Well, this is a small number of people and..."

But, I think you and I read the story and our brains went to exactly the same place, which was, "Boy! this kind of seems like Wells Fargo."

Moser: [laughs] It always starts small, right? I think the folks at Wells Fargo said, "Oh, this was just a couple of bad apples and just an isolated incident, no big deal," and it just starts snowballing. And I'm not saying that's what is going to happen here, I am saying, "I would not be surprised at all to see more to the story," particularly, when you look at how far back this goes. They're calling this all the way back to 2015, when Ken Chenault was leading the company at American Express and they were going through that relationship negotiation with Costco.

The first thing that came to my mind was that article we read a while back that talked about what went down with Costco and American Express when they were trying to come to these negotiations. And the juxtaposition between Costco going to visit American Express and the executives of AMEX going to visit the ones at Costco, I mean, it was very much a blue collar versus white collar, they were two very different cultures, and that was certainly on display there.

I think a lot of incentives, and Charlie Munger, to me, he's the guy when it comes to good incentives quotes. And so one that he's been known to say, "Show me the incentive and I'll show you the outcome." Having worked in the financial industry before with a bank and seeing how those incentive structures are set up, when it comes to selling and getting people into accounts and cards and whatnot, those incentive structures are still not good. They encouraged this type of behavior. And I think this type of behavior is really, it's slimy, you know.

When you're going into someone's credit record, that's sacred. You don't just run that, you do that with permission. When you're putting someone into a card, you want to put them in the right product. It's not necessarily about needing to hit this goal as a salesperson. And it sounds like a lot of these folks were looking to pump their numbers and maybe make things look a little bit better for American Express, and they did at the time.

So I don't know if this gets worse before it gets better. I would not be surprised at all to see a few more skeletons come out of the closet here. And then you've got to start asking yourself, leadership, is Stephen Squeri, the CEO of the company, is he the right guy for this job? Because he's been there for a very, very long time.

Hill: One of the takeaways I had from reading this article was just how important Costco is to their partners. And we've heard the stories before. We've talked to Jim Sinegal when he was running Costco, you've referenced the Bloomberg story from a few years back. Yeah, if you want to do business with Costco, Costco is probably going to have a greater amount of setting the terms of the deal, but it's probably going to be worth it for you as a business.

And I think that that's one of the big ripple effects here, is that this behavior that was unleashed by, even if it's just a small percentage of the sales force at American Express, it is a direct result of they lose the business at Costco and the ripple effect of that business. And just how important -- I mean, we think of it in terms of everyday people just doing their family shopping at Costco. One of the things this story in the Journal brings to light is the way small-business owners work with Costco and use it, and the amount of spending that they do and just how important that is for Costco and all of their partners.

I want to give a shout-out to the journalist AnnaMaria Andriotis at the Journal, this is a really well-researched, in-depth story.

Moser: Yeah, I did enjoy reading it. I mean, I don't enjoy reading about these types of things happening, but it was a very well-written piece that certainly digs into what could be a big deal. American Express, you look back to the financial crisis and how it dealt with that afterwards, the American Express has been an OK investment over the last five years. It's not knocking the cover off the ball, but it's hanging in there versus the market, and that's OK.

But when you look at how much the financial services space has changed over the course of just the last five years. We talked a lot about American Express early on in the context of companies like Visa and MasterCard and why would American Express be able to compete with the likes of Visa and MasterCard when Visa and MasterCard are able to beat them on price and have bigger networks and offer better rewards programs? And so American Express had to answer that, and they answered it by making other negotiations with reward partners, coming up with new offerings to be able to bring more consumers into their universe.

And that took a little bit away from their brand cachet, but I think they managed it very well and kept that brand intact. You look to today and the importance of the business customer -- I mean, that's essentially 30% of American Express' business is these business clients. And in a day and age now where you've got companies like Square and PayPal coming up with their own capital programs to help out small-business partners and Shopify changing the landscape for small business partners everywhere, I mean, it is just a different world today. And so, American Express has to become more competitive. This is definitely something that's going to set them back. Any kind of reputational risk in this space here, you got to figure out a way to manage through it.

And while Wells Fargo, I would say, for better or worse, too big to fail, I'm not envisioning a world where American Express goes away, but we said it was kind of a meh investment over the last five years, I think you could be looking at a situation where it's a meh investment going forward for a number of years as well.

Hill: Our email address is MarketFoolery@fool.com, a question from Mark Stenson, who writes, "Huge fan of the show. Being that the market is in a downturn and there are lots of opportunities presenting themselves, what is your opinion on getting a personal loan to help invest in these better prices as an added bonus on top of my cash that I already have on the sideline? With your help, I have a healthy return on most of my stock picks and I think I might get a pretty decent ROI. Thanks for helping me invest for my future and helping me keep calm during these trying times. PS: Teladoc has been killing it."

Thank you, Mark, for the kind words.

Moser: Teladoc has been killing it, Mark.

Hill: They have been killing it. What do you think of that? I read his question and I thought, "Boy, it never occurred to me to try and take out a personal loan to fund the cash reserves in my investing account!" And when I thought about it a little bit more, I thought, "I don't think I want to do that."

Moser: Oh, I've thought about it. [laughs]

Hill: Now, that's just me, but you've thought about it?

Moser: I've thought about it too, yeah. I mean, in today's environment, you get money for almost nothing. And so it becomes far more tempting these days. And you just think about the logic of it, if you borrow money at X% -- say, if you borrow money at 2% or 3% or 4%, that's what you're paying for that money. You need to outperform what you're paying for it. And with rates this low, that hurdle becomes lower, it becomes more achievable. At least you could see it and think, "Man, maybe I could do that!"

I'm going to go to a key phrase here in Mark's email, because it was a great one. I appreciate you writing it, Mark. When you said, again, "Great show and thanks for helping me invest for my future and helping me keep calm during these trying times." I would not borrow money to invest into the stock market, and I think that if you did, then you would not be able to keep calm during these trying times. I think one of the reasons why you don't do something like that, and it's why we recommend that you don't put money in the market that you know you're going to need within the next three to five years, is because it starts putting you in a situation where you don't necessarily have as much control and you can fall into a situation where maybe you become a desperate seller.

Now, if you borrow money from a bank, whether it's a home loan or a personal loan or whatever, you're not necessarily on a margin situation, like if you were to borrow money from your broker to short stocks or to buy stocks on margin. But at the end of the day, the more you lever yourself, the more indebted you become to invest money into the stock market, the more control you lose over the matter. And what we're seeing today in the stock market, up another 600 points or so, as we tape here. What's going on right now just doesn't make any sense. There's no rhyme or reason to it. It's very volatile. There doesn't seem to be really any rhyme or reason, which I think makes it even more difficult to try to invest in times like these.

So I personally will not borrow money to buy stocks. I don't need to. But I also think it just goes back to the importance of getting started young, so that when you're 30 or 40, you're not necessarily looking at trying to get started and make up for lost time. And I don't think that a good solution to make up for lost time would be to borrow money either.

Hill: Jason Moser, thanks for being here.

Moser: Thank you.

Hill: As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear.

That's going to do it for this edition of Market Foolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.