Last month marked the 30^th anniversary of the “Black Monday” stock market crash in 1987. I was a young stockbroker back then and had no idea how the entire stock market could be discounted 22% in a single day, especially since nothing else of considerable note occurred at the same time. No war broke out, no political scandal was revealed, nor was the economy on the verge of disaster.

I still remember the pall that descended over our office as anxious brokers stared at their quote machines hoping it was all somehow a mistake. Flash forward to the present, and it seems nobody is particularly nervous about anything. No matter what the news of the day happens to be, investors shrug it off and keep driving the market higher. The S&P 500 index tacked on another 2% in October to raise its gain for the year to 15%.

I’m happy about that, but I am also concerned that if Congress cannot pass a tax bill then a lot of those good feelings may quickly vanish. We may not know the final outcome of that process for several weeks, during which time we will probably see greater volatility in stocks of companies that stand to benefit from the proposed tax cut.

Open Positions

Such was the case for Athene Holding Ltd. (NYSE: ATH), which dropped nearly 10% during the last week of October after a new provision was added to the proposed tax plan in the House of Representatives that would impose a 20% excise tax on profits earned by U.S. companies and then transferred to a foreign subsidiary. However, sources close to the negotiations have indicated that this provision will most likely be amended or removed before the final bill is passed, in which case ATH should recover some of last week’s loss before its target holding period expires next week.

Unaffected by U.S. tax policy is Australian-based miner BHP Billiton Ltd. (NYSE: BHP), which is up more than 7% since we opened our position in it six weeks ago. The company’s most recent quarterly Operational Review issued on October 18 confirmed that it is on track to achieve its full-year financial guidance, which suggests it is increasingly being perceived as one of the primary beneficiaries of China’s resurging economy.  

Our position in Dick’s Sporting Goods (NYSE: DKS) was looking like a winner during the first two weeks after we bought in on October 12, but it reversed course after key supplier Under Armour reduced its forward sales and earnings guidance last week. It remains to be seen to what extent that translates to reduced revenue for Dick’s, but we should soon know when the company releases its third-quarter results and forward guidance later this month.

We also got a fast start out of KLA-Tencor (NasdaqGS: KLAC), which ran up 10% in the first six weeks of being added to our portfolio. The company reported record quarterly results on October 26, but the stock pulled back a bit since then due to reduced guidance for current quarter sales. However, at the same time the company also guided higher for full-year revenue and may increase that figure later if it wins a couple of “significant” contracts that it is bidding for overseas.

Our first two months of owning Western Digital (NasdaqGS: WDC) has resulted in no net gain due mostly to indecision over how its failed attempt to acquire Toshiba may impact future revenue. That is largely due to the on-again, off-again negotiations that have ensued for the companies to continue its joint venture arrangement instead. That’s a shame, since Western Digital announced solid quarterly results last week that were overshadowed by the Toshiba deal.

I have not yet gotten the bounce I expected out of Xerox (NYSE: XRX) when it dropped 10% after releasing its third-quarter results on October 26. I’m still convinced this is a case of discounted cash flow models failing to recognize the improvement in the quality of Xerox’s earnings, so I may extend this holding when it expires at the end of this week. If so, I’ll issue an alert with new instructions.

3TL is a BTW (big time winner)!

My hunch that global insurer AON plc (NYSE: AON) would issue a weaker than expected quarterly report proved true, pushing its share price down nearly 10% during the past week. My 3TL (three time loser) picks are not official positions so I have no portfolio result to show for it, but a couple of Systematic Wealth members reported short-term gains of 85% and 186% using options. Well done!

Closed Positions

We closed out three positions in October, starting with Fox Factory Holding (NasdaqGS: FOXF) on October 3 for an annualized gain of 63.4%. Two weeks later we sold Bank of the Ozarks (NasdaqGS: OZRK) for an annualized gain of 9.3%, which was offset a week later when we closed out Bank of New York Mellon (NYSE: BK) at an annualized loss of 10.6%. Last week we closed the book on Bojangles (NasdaqGS: BOJA) at an annualized loss of 11.5%, resulting in an average annualized return of +12.6% for all closed trades over the past month.