What does it mean to short sell a stock?

Short selling a stock involves borrowing shares of a stock from a broker and selling them on the market with the expectation that the stock's price will decline. Once the price has decreased, the short seller intends to buy back the shares at this lower price, return them to the broker, and pocket the difference as profit. This strategy is based on the belief that the market has overvalued the stock, allowing the investor to benefit from a price drop.

In contrast, the other options refer to different investment strategies. Buying stocks expecting their prices to decrease is not accurately descriptive of short selling, as it does not involve initially selling the stock borrowed. Holding stocks long-term or investing in anticipation of a price increase signify traditional "long" investing strategies, where investors buy with the expectation of making money as the stock's value rises over time. Therefore, the essence of short selling—borrowing and selling shares to profit from a potential decrease in price—makes it distinctly unique and aligns with the correct choice.