Definition of Fire Sale
By Dave Manuel
What is a "fire sale"? What is the definition of a "fire sale"?
What is a "fire sale" as it applies to the stock market? For help with this definition, let's look at a few examples of the term "fire sale" in "real world" situations.
1. Department store shuts its doors due to bankruptcy, has a "fire sale". In this situation, a "fire sale" is the sale of the department store's goods at extremely low prices in order to move the remainder of their inventory. The store is going bankrupt, so they need to get rid of all of their inventory. The only way to do this is to offer extremely low prices in order to entice buyers to buy. This is a "fire sale".
2. A sports team trades all of their best (and most expensive) players in a "fire sale" in order to cut costs. The team is looking to move salary off of their books. In exchange for trading away their best players, the team received assets of low financial value (draft picks, prospects) in return. This is a "fire sale".
Now, as it applies to the stock market - a "fire sale" of a stock takes place when a stock is selling for much less than its perceived value.
Example - during the recent 1,000 point intraday collapse of the Dow Jones Industrial Average, PG (Proctor and Gamble) momentarily lost about 25% of its value. There was a "fire sale" on PG shares that day.
The term "fire sale" implies that the asset has more value than what it is being sold for.
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