You may hear or read about forced selling these days because the many big drops in the stock market recently suggest that it's going on. Plus, once it starts, it tends to snowball.

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You may hear or read about forced selling these days because the many big drops in the stock market recently suggest that it’s going on. Plus, once it starts, it tends to snowball.

Imagine that you own shares of a mutual fund, and it has fallen in value by 30 percent, as has happened with some funds lately. In many cases, it’s best to just hang on, waiting for a recovery — at least as long as you still have faith in the managers. But many shareholders will bail out, in fear or anger. When they do, the managers have to sell off some of the fund’s holdings in order to generate the cash needed for withdrawals. With many funds thus selling lots of stocks, that sends the price of the stocks downward.

This then causes more investors to sell, putting further pressure on stocks.

Ironically, at a time when many fund managers see bargains galore, they’re forced to sell, not buy.

— The Motley Fool