I believe there are many times when we bought a stock and had our convictions tested with negative news. Despite doing all the due diligence to avoid pit-falls prior to our decision-making, risk can never be eliminated. Depending on the outcome, the decision made can be seemed to be a wise or foolish one.
There is a concept in Game Theory called Pascal's Wager. We can look at the possible scenerios to see if decision to stay vested is a viable one:
- Believe in UMS fundamentals and UMS turns good: Good for me (+3)
- Believe in UMS fundamentals and UMS turns bad: This is bad for me (-2)
- Don't believe in UMS and UMS turns good: Sold for some profit and miss out on the recovery run - No damage actually (0)
- Don't believe in UMS and UMS turns bad: Sold for some profit and no damage on further downside (0)
Points are added to the back of the actions and possible outcomes. A higher positive number means a better outcome and a negative one means a bad outcome. For the scenerio where I believe in UMS fundamentals and stay vested, I do better when the company turns out good (+3), rather than when it turns out bad (-2). Reason being, I am able to set an exit strategy. Simply buy and hold without having an exit strategy would be unwise.
For scenerio where I don't believe in UMS fundamentals, there is no difference as both give a 0.
My simple conclusion: Stay vested. Of course, this is too simplistic. It all lands on weighting the risks and rewards.