• In life, we don’t pick what we want, but choose from package deals
  • How many of the world’s developments occurred by association?
  • Investing is about choosing the right combinations, not the right opportunities

I’ve got a prediction for you: today’s Fortune & Freedom will elicit the biggest reader mailbag response of the year. And, this time, it won’t all be hate mail. It’ll be all about the idea of “guilt by association”, taken in a whole new direction. More specifically, we’re talking about “cause by association”… or something like that.

What I mean here is… well, I’m not quite sure how to explain it. That’s why I’m asking for your feedback to help me put it into words. But the underlying idea is that a lot of things happen because we make choices in bundles or package deals. We cannot pick and choose bits and pieces. This means we often end up with unusual and unexpected developments.

I would use marriage as an example, but thought better of it…

When we vote in an election, we don’t vote for a specific combination of policies. We vote for a party’s bundle of policy commitments. If you like some but dislike others, you’re out of luck.

This begs the question: how many government policies have made it into law despite the fact that very few people actually wanted them? They were just put into a package deal and got their support by association with other policies that were actually popular?

Here’s a more concrete example of the same idea in action. In last week’s referendum, Australia voted to reject an amendment to the constitution. But there were really two parts to it: recognising indigenous people and establishing a body to advise parliament.

Australians rejected the proposal by a significant majority – nowhere near the thresholds needed to amend the constitution. But I suspect they were actually in favour of the first part of the proposal and only against the second. Thus, what occurred was not due to the cause itself, but how it was bundled together.

This is, ironically, an example of my idea failing to play out. The strategy of the “Yes” campaign seems to have been that associating the recognition of Indigenous Australians with the creation of an advisory body would allow the latter to sneak through on the back of the popularity of the former. Instead, as time went on and awareness of the latter grew, it became the issue that dragged the former down with it. Now, thanks to how the two were bundled together, almost everyone is grumpy about the outcome.

Despite the ultimate failure, it’s a good demonstration of how a cause can succeed by association rather than on its own merits. It’s because we tend to have to choose in bundles.

My question to you is: how many of the world’s most important developments were brought about by the same sort of conflation – association rather than deliberation?

How many wars began because politicians conflated or combined separate issues into one topic? Terrorism, weapons of mass destruction and the war in Iraq, for example.

When it came to vaccines, the issues of preventing infection, preventing the spread of the virus and preventing the severity of the symptoms were conflated into all sorts of bizarre combinations that justified all sorts of bizarre policies.

Despite the frequency of lab leaks in the West, suspecting a lab leak origin for Covid was conflated with racism, and so the world dismissed it… for a while.

I hope you are getting a feel for the sort of phenomenon that I’m trying to pin down.

A crucial part of this idea is how the package deal can contain contradictory elements to it. And that’s where we get into trouble.

A powerful example of this comes from the nuclear power industry. The environmental movement, especially in Germany, came to prominence opposing nuclear power for obvious reasons.

But since then, the key environmental cause of the day has been cutting carbon emissions. This creates a bit of incongruity, as you can imagine… The environmental movement has dug in on the wrong ground – the opposite of where they should be.

The French, meanwhile, who went nuclear on nuclear for energy security reasons after being burned during the oil shock of the 70s, are sitting pretty on carbon emissions almost by accident. Especially compared to its environmentally conscious cousins who recently had to turn back to coal to keep the lights on!

The package deal of what was aligned with nuclear – environmentalism and energy security – defined nuclear’s success or failure, not nuclear’s actual merits.

Another example of the same idea at play in the nuclear industry is the fact that we use uranium instead of thorium fuel. Some historians argue this is because of uranium’s weapons potential – an important consideration for governments back when nuclear was being commercialised and the Cold War was on.

The package deal with using uranium – weapons and electricity – lead to the development of nuclear power plants that could melt down and create more dangerous waste. If the world had prioritised the safety and economy of thorium instead, we may have avoided so much of what followed.

We also see this issue in the political sphere today, most obviously in the bizarre marriage of the political left and Palestinian activism. Their beliefs and values couldn’t be more different, and yet the left’s activists are out supporting Hamas.

This creates terrible confusion about who exactly is being anti-Semitic these days. Whenever a swastika appears, we don’t know if it was the left or the right. Funnily enough, the same issue applies in Ukraine with the Canadian Parliament recently celebrating a former Nazi soldier.

When the UK’s political right announces the country should expel those protesting in favour of Hamas, they are lambasted, while Germany’s Green/Left coalition government proposes to do the very same thing. How times have changed…

You can see how cause by association is causing plenty of confusion and trouble, or even chaos, in energy markets and politics. Before I ask you to send me your own examples, as well as your suggestions for naming this phenomenon, let’s consider our actual remit. Does the same idea apply in financial markets?

It won’t surprise you that I strongly suspect the same phenomenon is taking place for investors. And my introduction about politics, referendums and energy markets was really just to try and give you a flavour of the point I’m trying to make (and struggling to give a name to) before we apply it to investing.

You see, investments are very rarely made in isolation in the professional investment sector. Decisions aren’t made based on whether an investment is good or bad, but based on how it fits with the existing portfolio – a package deal.

This creates some odd situations. For example, if you believe that a certain sector of the market will boom, you might want to invest in stocks that benefit from the opposite outcome, just in case you’re wrong. This idea of hedging your bets seems contradictory, but has proven to be powerful for managing large amounts of money over long periods of time.

Similarly, investment trends can succeed or fail for seemingly unrelated and unexpected connections. The AI boom in stocks is making itself felt in semi-conductor stocks. Bond market crashes have a habit of undermining bank stocks. The 2008 sub-prime meltdown popped up in all sorts of unexpected places, including many local councils in Europe. Indeed, given the way in which financial markets transmit contagion during a panic, investing at all seems like a bundle deal with all assets going up and down together.

Most investors these days choose from bundled deals – funds that include things they agree with and disagree with. Investments they want to own and ones they don’t. Many exchange-traded funds have been profiled for failing to deliver their remit, such as environmental, social and corporate governance funds that hold oil stocks.

Another way in which the idea proves to play out in financial markets is the tendency of investments to succeed or fail because of factors you didn’t expect or even intend to be relevant when you made the decision to invest. The gold price and bond prices have spiked in response to the attack on Israel, but I certainly didn’t see it coming. When you invest, you buy into a bundle of risks, not just the ones you want to isolate… unless you know how to isolate them.

All of this makes investing a lot more challenging. You can succeed or fail based on associations and package deals that you don’t really want in the first place or don’t see coming. Or even if you pick and choose specific investments exposed to specific trends, events might create unexpected relationships that even contradict your investment thesis.

A lot of nuclear power enthusiasts believe the uranium price won’t spike if nuclear makes a comeback because higher-anticipated demand will cause a flood of new uranium supply to hit the market faster than nuclear reactors can be built. The thesis may defeat itself as an investment trend.

When you make investment decisions, you need to consider these less obvious relationships. That’s what my mentor John Butler is doing at Southbank Wealth Advantage – a service designed to consider your wealth as a package rather than a list of individual investment opportunities that aren’t related to or dependent on the same factors. It also seeks to profit from trends and indirect associations.

Once you take this bird’s-eye view of investing as sectors, your optimal investment portfolio will likely change, dramatically. So, check out his work here.

But let’s finish with a reminder to give me your own examples of how making choices in bundles has led us down some strange garden paths in history. And what we might call this phenomenon, if we can give it a name…

Don’t forget to include permission to publish your comments with your email to [email protected].

Unless they’re about marriage…

Until next time,


Nick Hubble
Editor, Fortune & Freedom