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General Stock Investment Strategies/Need analysis/opinion of a current stock holding

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Question
I need an opinion from someone knowledgeable with stock investing.
I bought 3,000 shares of Health Management Associates (HMA) on 7/23/13 at $15.75 per share. It dropped like a lead baloon on 7/30/13 from $14.92 to $13.30 on better than 10x volume following the release of a buyout agreement with a larger, regional competitor. An investor fight ensued as a large holder of the stock, Glenview Capital (a recent hedge fund buyer of substantial J.C. Penney stock shares), flexed it's muscle and led a successful board takeover of the company. In the weeks following the board takeover, there was significant insider selling by several chief members of the HMA senior management team.
As of yesterday's close at $12.58, my position is just shy of a $10,000 loss in this equity.
I don't have enough experience to understand the terms of the agreement between HMA and the acquirer, Community Health Systems, Inc. ("CHS") (NYSE:CYH). Under the terms of the agreement, public shareholders of HMA will receive $10.50 in cash and 0.06942 shares of CHS for each share of HMA they own. Based upon CHS's closing stock price of $47.23 on July 29, 2013, HMA shareholders would have received consideration valued at approximately $13.78 per share (a discount of almost 8%). In addition to the cash and stock consideration, HMA shareholders would also receive one Contingent Value Right for each HMA share they own, which could yield additional cash consideration of up to $1.00 per share.
Potentially as a shareholder, I assume I would receive $14.78 per share when, and if, this agreement is finalized. Also, I surmise that Glenview is working to sweeten the deal for HMA shareholders. Again when, and if, this agreement is finalized as it is currently outlined, I then would only be out approximately $3,000 ( 15.75 per share minus 14.78 per share).
In the meantime, the stock is in a clear price downtrend. Not really understanding how these agreements work, I'm betwixt selling it now and swallowing the $10k loss or holding until this merger/takeover plays out and absorbing a smaller loss of around $3k.
One last thing I've noted, the majority of analysts on the Marketwatch, yahoo finance & google finance sites are rating  HMA as a HOLD; there are a few BUYS, but no SELLS as of last week. The Seeking Alpha article, included in an attachment listing dated HMA news, appears to be positive about holding onto this stock. While I am fairly new to this stock trading game, I do know that tomorrow Seeking Alpha or someone else could run a piece saying something 180 degrees different.
I know no one has a crystal ball and can accurately predict what will transpire in the short or long term with HMA or any other equity for that matter. I'm a rookie who is just reaching out trying to gain some insight and understanding from someone with experience who has been around the block a few times more than myself.
Any insights or thoughts would be most appreciated.
Thank you in advance for your interest and attention to this matter,
Mitch Sunday
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LINKS:

http://globenewswire.com/newsrelease/2013/07/30/563358/10042578/en/GaineyMcKenna
Gainey McKenna & Egleston Announces Investigation of Health Management Associates, Inc. Buyout HMA   July 30,2013
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http://www.reuters.com/article/2013/08/12/us-hma-glenview-idUSBRE97B0UE20130812?
Glenview says shareholders vote to replace HMA board      Aug 12, 2013
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http://beta.fool.com/mthiessen/2013/08/13/how-will-this-deal-affect-the-health-c
How Will This Deal Affect the Healthcare Industry?        Aug 13, 2013
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http://biz.yahoo.com/e/130816/hma8-k.html
SEC Form 8-K for HEALTH MANAGEMENT ASSOCIATES, INC
Change in Directors or Principal Officers, Amendments to Artic        Aug 16, 2013
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http://seekingalpha.com/article/1667162-keep-a-close-eye-on-health-management-as
Keep A Close Eye On Health Management Associates, Community Health Systems    Aug 30, 2013
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http://www.reuters.com/article/2013/09/05/us-teamhealth-subpoena-idUSBRE98414B20
Team Health gets subpoena from U.S. watchdog over services to HMA        Sept 5, 2013
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www.wkrb13.com/markets/206204/health-management-associates-eps-estimated-cut-at-   citigroup-inc-hma

Answer
Hi Mitch-
I can't give specific investment recommendations on this site, but here are some comments that may be helpful. I didn't even look up the companies you mentioned, and know nothing about the specific deal - I'm just commenting based on what you wrote in your question.

First, you said that you're fairly new to stock trading, but it sounds like you bought $47,000 worth of a single stock. That's a big position! If this is your only stock holding, and it's a significant portion of your net worth, that's the first suggestion I have -- if you pick stocks be sure to diversify, and not let so much hinge on any single stock pick you make. The risk of getting hit by some kind of unexpected company-specific event drops significantly if you own say at least 10, or better 15 or more, individual stocks (ideally, alongside mutual fund investments that hedge the risk that your stock-picking is poor). Based on surveys many individual investors buy just one, two, or three stocks and that's a recipe for tons of risk. That's water over the dam at this point, as you already made the purchase. But in the future, it's something you can take from this experience and apply to future investments, and factor into your selling decision for this stock. Diversify, in case a stock pick doesn't pan out (which is inevitable).

Or to state that more generally, if you avoid "all-or-none" decisions when investing, you reduce your risk of being wrong with any one decision. As an example, if you hold an investment and aren't sure if it's the right time to sell, but think you'd like to...maybe you only sell part. The all-or-none approach is to either hold all, or sell all, and is riskier. Which means it pays off better if you're right, but nails you more if you're wrong.

More about "company specific events" - it sounds like you've been hit with what I like to call a "takeunder." It's just like a takeover, only at a lower price than you want...in this case, a lower price than you'd paid for the stock. That doesn't mean the price is necessarily unfair, just that it's below what would make you a profit. That's an example of a company-specific risk that can come up; you might buy a stock and see the company taken over at what you see as a low price. Quite a few Dell shareholders are in this position for example. This is just one example though and any company can be hit with negative news - a lawsuit, new competitor, unknown accounting problem, etc. etc.

Next...a concept from behavioral finance called "anchoring" is good to know about. You paid $15.75 and it's very difficult to think of anything less than $15.75 as a fair price - you anchor off that price when assessing the stock. This makes investors hold onto stocks longer than they should, with a goal of "getting even" even in scenarios where it isn't likely to happen. The market - the universe of thousands (millions?) of investors, any of whom could buy or sell the stock today - is saying the stock is worth $12.58 today...do you have a good reason to believe it's worth more than that? Maybe it is, maybe this deal is worth more than the $14.78 you mentioned and people don't think it's going to happen, but it is. But then again, maybe you didn't evaluate the stock correctly and it wasn't worth $15.75. Or it was at the time, but isn't now. Again...forget about $15.75, assess the stock on its merits today. A good exercise to do: would you buy the stock today at today's price? If not, why do you continue to hold it? (Incidentally, a drop in price can lead to buying more, if your assessment of value hasn't changed. Again though, it sounds like you already have a big position in this stock and you need to be careful about "throwing good money after bad.")

Regarding that buyout, I'd suggest that you spend a lot of time understanding the terms of this agreement - read it over and over again if you need to, hire a lawyer, whatever it takes. If a portion of the consideration is stock in the acquirer, do you feel confident predicting what that stock price will do between now and when the deal closes? What exactly are those contingent value rights you mentioned and what are they worth? And, is there a chance the deal won't close - if so, what are the prospects for the company absent that buyout?

These aren't easy questions, and it's sort of my point...it'd difficult to analyze individual stocks! And a closing comment - take with a huge grain of salt the buy and sell recommendations that you see, and commentary that you read online. There's a huge range in quality of commentary and a lot of the freely-available stuff is, in my opinion, garbage. Not specific to any site - it's just not a reliable way to assess stocks as the buy/sells and commentary get it completely wrong too often. My view is that you have to come up with your own approach for picking stocks, something that's repeatable and based on a proven strategy - or not bother with stock picking. I also think there's an argument for learning using a "fake" portfolio - and only using real money if you find that strategy. I guess though the lessons stick better when it's real dollars. For this one, remember these things: any stock can drop a lot right after you buy it; takeunders, as a concept; diversification reduces risks like these, and others. Hope that's helpful...

-Tad

General Stock Investment Strategies

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Tad Borek

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I am a San Francisco-based investment adviser and attorney.

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I opened my investment advisory practice, Borek Financial Management, in 1999, and have been a licensed attorney since 1993.

I received my B.S from Cornell University, and a J.D. from George Washington University Law School.

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