The majority of the research I do is company specific. But over the past few years I’ve been much more concerned with the macro risks to my micro strategy. Extreme valuations, matched by euphoric sentiment and technical warning signs, have had me focusing on the big picture more than I normally would like to. Balancing the two has really been a high wire act.

In studying individual companies the research is pretty straight forward. I want to find stocks that offer a very compelling risk/reward setups (like Apple in early-2013 and Herbalife in early-2015). To do this I use a blend of fundamental and technical signals I’ve found to be very effective over the years.

The macro research I do, though, can be much more creative and experimental. I try to keep an open mind about things in the markets generally but macro is one area where it’s critical. There are just so many narratives at work at the same time and they typically overpower the fundamentals for long stretches of time.

Understanding what is driving markets and how those narratives may be changing may seem like a fool’s errand but it’s integral to a successful macro approach. One narrative that has been driving markets recently is the fear of a 1987 crash redux. Some may claim this fear itself is a contrary indicator that prevents a crash from actually occurring. When too many are fearful of something in the markets it rarely comes to pass.

However, as recently noted by Robert Shiller in the New York Times, these sorts of fears can actually become a self-fulfilling prophecy and this is precisely what happened in 1987:

It appears that a powerful narrative of impending market decline was already embedded in many minds. Stock prices had dropped in the preceding week. And on the morning of Oct. 19, a graphic in The Wall Street Journal explicitly compared prices from 1922 through 1929 with those from 1980 through 1987. The declines that had already occurred in October 1987 looked a lot like those that had occurred just before the October 1929 stock market crash. That graphic in the leading financial paper, along with an article that accompanied it, raised the thought that today, yes, this very day could be the beginning of the end for the stock market. It was one factor that contributed to a shift in mass psychology. As I’ve said in a previous column, markets move when other investors believe they know what other investors are thinking.