The day of that crash, he said, almost all the employees who had discretion over their retirement accounts gave him instructions to get them out of the stock market. That, of course, was not the best market timing on their part, since the crash had already occurred and they had already suffered the loss. These employees had plenty of company that day in wanting out. Many brokerage houses simply stopped answering their phones because there were almost no buyers at reasonable prices. That left many investors, brokers and traders utterly unable to execute orders.
Mutual funds are organized to let investors turn their equities into cash at any time, in a hurry.
Normal redemptions pose no problem for the funds, which are used to having purchases exceed redemptions. But consider the fact that mutual fund portfolio managers have in the past few years become the intermediaries for most American equity investors. Those managers are now among the largest buyers and sellers of securities, and what they do in the market has an immediate effect on security prices. Many people think modern investors are patient enough to weather any storm. But if investors tried to bail out of the markets in a downturn, this very behavior could trigger the worst.