Dan Rubin: Today, I am thrilled to have with us the King of CAPS, Russell "TMF Eldrehad" Carpenter.

OK, let's get right down to business and dig into the mind of the man who is currently No. 1 among our community of almost 30,000 rated investors. Recently, you revealed that you've been diagnosed with cancer. When this happened, did you find yourself thinking that the stock market and CAPS were meaningless in the grand scheme of things? Or does the stock market still seem like a meaningful way to spend your infinitely valuable time? 

Russell Carpenter: Going through this certainly has caused me to rethink my perspective on some things. I absolutely still think the stock market and CAPS are very valuable and meaningful ways to spend my time. The only question for me was, "How much time?" Unfortunately, I'm not the heir to a multibillion-dollar fortune, so the stock market and what I learn from CAPS are still going to be important as I plan for the financial future of my family.

DR: Because I am a man of infinite depth and enough passion to star in two soap operas simultaneously, I long to talk with you forever about the beauty of the world, but you're the Grandmaster of CAPS, and practical reality beckons me to max out my time with you by digging into your stock-picking mindset. Are you surprised to see that although you "kinda, sorta pseudo-semi-retired" from CAPS in January, you're still the Top Fool in May?

RC: When I went into semi-retirement, I was already sitting on a nice lead and what I believed to be a bunch of good picks, so I didn't think it'd be easy to catch me. What has surprised me is having become Top Fool in the first place. I mean, me? Ahead of people like the Gardner brothers, Bill Mann, Seth Jayson, and countless other equally brilliant people? That I even made it to the Top Fool spot for five minutes against so many phenomenal investors is what I find surprising.

DR: You've had great your success in shorting stocks in CAPS. Has this caused you to short stocks -- or short more stocks -- in the real world? 

RC: No. I've never shorted a stock in the real world, and I likely won't start anytime soon. I don't even have a margin account. That doesn't mean that "thinking like a short" when looking at possible investment opportunities hasn't proved itself valuable.

DR: My reddest thumb [thumbs-down votes in CAPS get a "red thumb" icon] is on Dry Ships (NASDAQ:DRYS). I see that, like me, you're down roughly 46 million points on that one. It's personal for me, because my old man bought the stock despite my warning and now openly mocks me over the fact that his money has doubled. Is the lesson here that the fundamentals of a company are enough to overcome questionable management? Or is there no lesson to be learned yet, as the stock has plenty of time to find a watery grave? 

RC: I still think that in the long run, Dry Ships will underperform the market. But perhaps the real lesson to be learned here is that in one's investing career, one is going to make some bad calls along the way -- and some of them are going to really stink up the joint! The trick for me is to try to learn from my mistakes and not to get lulled into a false sense of infallibility by my successes.

DR: Let's get to the one issue that I think is most controversial in CAPS-banking accuracy -- the ability to "lock in" accuracy by closing out a pick once it's gone up 5 points. If you were calling the shots, would you modify this feature of CAPS?

RC: I'd change it in a heartbeat -- that is, once someone presented me with an alternative scoring method that I believed, on balance, was better. Winston Churchill said, "Democracy is the worst form of government except all the others that have been tried." I think the same is true for the current CAPS scoring methodology.

DR: But I think many Fools feel that a 5% gain is no big deal. Why not up the qualification for accuracy to, say, 10%?

RC: I wouldn't personally be opposed to the change, though applying such a change retroactively presents some complications. One thing I do know for sure is that the CAPS team is actively listening to all of the input from Fools on this and other issues related to CAPS, and the team has continually been discussing how to use this input to improve CAPS.

DR: What are three key things players can do to improve their CAPS game? 

RC: First, don't be afraid to call "underperform." I've written a bit about this in my blog over the months. Second, read the pitches of your fellow Fools -- there's a treasure trove of information out there. Third, go with your gut.

DR: When actually investing part of your family fortune in a stock, what percentage of your analysis is science -- pure mathematical analysis -- and what part is art, or a gut feeling?

RC: This is a really good question. To put it in the percentage terms you speak of, on balance I'd say I spend about 20% of my time on the mathematical analyses and the remaining 80% of my time on analyzing the businesses.

Mathematical analysis plays a critical role, but for me it's generally a supporting one. What I tend to lean most heavily on is business analysis. Key questions for me include: What competitive advantages, if any, does the firm have? How long might one expect them to last? What recent or future technological changes might drastically alter the way the firm operates? What does the competitive landscape look like, and how might it change?

I generally don't get to math or valuation until after I've spent some time to at least somewhat understand the business. For me, doing the "math" first doesn't make a lot of sense. The only way I have any hope of determining whether or not a company is fairly valued at a forward P/E of 15, or 30, or 50, for example, is to form an opinion as to the future prospects and challenges of the business first. Otherwise, I'd be looking at numbers completely out of context, and I don't find that very meaningful or informative.

DR: OK, I'm gonna try out a new feature on you. I call it the 10-Q. I'll ask you 10 questions. Please just answer them with a word or two and no thought. Ready, set, go! Oh, wait, I gotta start asking questions.

OK. Here we go. Best music for stock-picking?

RC: Little Eldrehad's rendition of "Baa Baa Black Sheep."

DR: Ready to cry "uncle" on your Netflix (NASDAQ:NFLX) bear call? 

RC: In the words of Bart Simpson, "No way, man!" Netflix is a great company, but I still think the stock price is too rich.

DR: A value man!

Best burrito-maker in Southern California?

RC: Baja Fresh.

DR: Wrong! Paquito Mas.

Will Seth Jayson ever be top Fool in CAPS? 

RC: Undoubtedly. He's far better at picking stocks than I'll ever be -- CAPS rankings notwithstanding.

DR: Humble pie!

If you could only own one stock, it would be?

RC: It wouldn't be a stock at all. If I were limited to only one investment choice, it would probably be Spiders.

DR: Ever don a Sherlock Holmes cap and a pipe while researching a stock?

RC: I prefer a green eyeshade and an antique hand-crank adding machine.

DR: If you could only use one stock-analysis metric, it would be ... ?

RC: A modified version of EV/FCF.

DR: Funniest pretentious mutual fund symbol?

RC: I don't pay attention to mutual fund symbols, but my favorite stock ticker symbol is BOOM, the ticker symbol for Dynamic Materials (NASDAQ:BOOM).

DR: Would you rather be given a million dollars or earn $800,000 through great stock-picking? 

RC: Whichever one nets me more after taxes.

DR: Russell "TMF Eldrehad" Carpenter, thanks a lot for stopping by my blog, and I know I speak for all Fools when I say: KICK CANCER'S BUTT. We love having you around.

RC: It's been my pleasure to be here -- thanks!

To join our growing CAPS community of almost 30,000 rated investors, head right this way. It's entirely free to do so.

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Fool contributor Dan Rubin owns shares of Netflix, and while he doesn't speak softly, he carries a big queue. He does sometimes forget to ask the 10th question, though. Russell Carpenter does not own shares in any of the companies mentioned. The Motley Fool has a disclosure policy.