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

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.

Source: Investing Answers