DEFINITION of 'Bloodletting'

A period marked by severe investing losses. Bloodletting may occur during a bear market, in which the value of securities in many sectors may decline rapidly and heavily.

It is named after an ancient medical practice in which doctors would use leaches or cuts to drain some of a patient's blood (one of the four humors). The premise being that it was "healthy" to balance the humors if feeling ill.

BREAKING DOWN 'Bloodletting'

Investors facing a bear market have the option of riding out the downturn and holding onto their investments, or selling their investments in order to mitigate losses. A sell off of a particular security may result in a further decline in its value, as there are more sellers than buyers available in the market. An investor who thinks that the market will improve, may take advantage of this situation by buying up bargain stocks.