What Is Sell?

The term sell refers to the process of liquidating an asset in exchange for cash. Liquidation is a term used to describe the conversion of non-liquid assets, such as real property, stocks, or bonds, into a liquid property, such as cash, through an exchange on the open market. For example, your house is a non-liquid asset, but when you sell it, you convert it into a liquid asset in the form of cash. A sale performed by a government may be referred to as a disinvestment.

In investing, especially with options, sell generally refers to the act of exiting a long position in an asset or security. In investment research, sell refers to an analyst's recommendation to close out a long position in a stock because of the risk of a price decline. Most people invest in stocks to grow their assets—they hope that the stocks they invest in will grow in value. 

Sell Explained

Since the act of selling an investment crystallizes a profit or a loss, depending on the initial purchase price, it may have tax implications for the investor. The profits from the sale of a non-liquid asset are known as capital gains and may be subject to capital gains taxes. Capital gains taxes apply any time you sell an asset for more than you paid for it. If you’ve owned the asset for longer than a year, it will be considered a long-term capital gain and will be taxed at a lower rate than short-term capital gains. Capital gains on long term assets in 2019 are 0%, 15%, or 20%, depending on your tax bracket, while short-term capital gains tax rates correspond to regular income tax brackets. Capital gains from sales of stock are reported on Form 1099-B.

The selling of holdings is often disliked by long-term "buy and hold" investors. They may believe that market averages usually have positive performance over a prolonged period. However, selling may be a prudent course of action in many situations, especially when it needs to be done to rebalance an investment portfolio or to take profits out of the market.

Key Takeaways

  • Sell refers to the process of liquidating an asset in exchange for cash.
  • Selling for a gain may have tax implications for the investor.
  • Long-term "buy and hold" investors often dislike selling a holding.
  • In short selling, a trader borrows an asset in the hopes the price will fall before they must return it to the lender.

Short Selling

By selling a stock that is at risk of a decline in price, investors can protect some of their investment from the risk of the stock losing value. However, some investors may choose to engage in what is called a short sell, which subverts the usual stock market investment strategy of “buy low, sell high” in order to help the short seller profit from a drop in the stock’s price.

Short selling is a two-step process. First, the short seller borrows the stock from a brokerage and sells it right away. The seller then expects to be able to proceed to step two, buying the stock back when it has dropped even further in price. If all goes to plan, the short seller can return the stocks to the lender and make a profit.

Real World Example of Sell

In 2019, CNBC noted that Victoria's Secret is still trying to sell "sexy" but it isn't working. This was regarding the decrease in the store's sales over the past three years. One of the reasons for the decrease is because of the trend toward more comfortable pieces in neutral colors, rather than the bedazzled sets the store is known for. Other lingerie brands that are growing while Victoria's Secret sales fall, include Adore Me and Third Love, which are popular especially on Instagram.