Charles writes:

Do you ever analyze politics as part of making investment decisions?

Yes, but it's by no means the main part of investing. Most politics that people watch has little bearing on what moves the market, or the country for that matter.

Sometimes, however, an investment theme comes up that is greatly affected by Washington. The current financial crisis is a fine example. The potential bailout of Fannie Mae and Freddie Mac, the support of other banks, aid for student lending, and last spring's stimulus package all form part of the research needed for knowing whether it's a good time to invest in the financial sector.

Taxes also bear watching, but there's no consensus on what tax environment works best for the economy, much less the stock market. Ronald Reagan's tax cuts are credited with pulling the U.S. out of the doldrums of 1970s stagflation and reinvigorating the stock market. Indeed, the S&P 500 gained 178% on Reagan's watch. So, we should conclude that lower taxes are good for the economy and market.

But, then, how to explain what happened during Bill Clinton's party years at the White House? He raised taxes and the S&P 500 gained 256% on his watch, an even better performance than it turned in under Reagan.

See what I mean? It's hard to say whether taxes have much of an effect, although every analyst you talk with will tell you why they do and will be able to go on at length as to how, with plenty of charts, but just try making a decision from the data and I wager you'll give up.

No, for the most part investing comes down to calculating earnings, projecting margins, discounting future cash flows, and keeping an eye on valuations. It won't make a heap of difference to, say, the Starbucks recovery plan whether at this time next year the country is being screwed up by President McCain or President Obama.

What I do like to take a stab at from time to time in The Kelly Letter is sane commentary on frenzied political stories. The mainstream media gets so frothy when it comes to politics. An investor's cool head helps.

For example, I wrote to subscribers in March:

The idea that Clinton and Obama are neck-and-neck in the race for the Democratic nomination is a media driven fiction. It makes for great edge-of-the-seat reading, but is wrong.

Clinton has almost no chance of winning.

Even her own campaign says she can't win more pledged delegates at this point, and any calculator will tell you the same thing. Even if she wins every single contest remaining with 60% of the vote -- a margin of victory she's attained only three times so far -- she would still trail Obama in the delegate count.

That was helpful in getting back to focusing on issues that actually meant something. We knew way back then that Obama would take the nomination.