Since most people believe that stock selection is the key to making money, I'd like to share with you the source of that myth.

1) Mutual funds are by charter supposed to be fully invested. Furthermore, their job is NOT to make money but to outperform the market (which most of them cannot do).

2) If you must be fully invested, then you cannot really practice position sizing or proper risk control. And even asset allocation (which is really position sizing) seems like finding the right assets.

3) Mutual funds, by the way, don't get paid for performance, they get paid by the amount of assets they manage...they get paid if they keep your money.

4) When the market goes up, most funds make money and most people are happy to be a little richer...and the fund managers go on CNBC and talk about which stocks they like.

5) When the markets go down, most funds lose money. The funds that make money do so by stock selection. And what they do is find stocks that are selling for less than their assets are worth if they were liquidated.

6) And when we have mutual fund crises (like the one recently when funds were selling to mutual funds when the public couldn't buy), it was all blamed on market timing.

7) What most people don't understand is that the best traders get out of mutual funds and become hedge fund managers where they can really trade. And very little of what they do has to do with stock selection. It has to do with cutting losses short, letting profits run, and proper position sizing.

So much for our little myth.

Welcome to the world of how money is really made in the market.