Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Sell-Off

What it is:

A sell-off is the rapid selling of a security leading to a sharp decline in its price. 

How it works (Example):

When a substantial number of shareholders sell a specific stock, it is called a sell-off.  Generally speaking, prospective buyers sit on the sidelines until the conditions that caused the sell-off to occur are over. So because there are few buyers and many sellers, the stock price declines, sometimes dramatically.

A sell-off may be caused by an event within the company, like a report of lower than expected earnings. A sell-off can also be caused by external forces. For example, a spike in grain prices may trigger a sell-off in food stocks because of the increases in raw materials costs.

Why it Matters:

Sell-offs are important market events. Savvy investors should try to sell a security well before a dramatic sell-off so as not to be the last one holding the stock. At the same time, investors can take advantage of sell-offs, especially broad market sell-offs, to buy fundamentally goods stocks at very affordable prices.