Mosaic Theory

What Is the Mosaic Theory?

The mosaic theory alludes to a method of analysis utilized by security analysts to gather information about a corporation. The mosaic theory includes gathering public, non-public, and non-material information about a company to decide the underlying value of its securities and to enable the analyst to make suggestions to clients in view of that information.

How the Mosaic Theory Works

There is a continuous discussion within the investment community regarding whether this style of analysis abuses insider information, however the CFA Institute, formerly known as the Association for Investment Management and Research (AIMR), has recognized mosaic theory as a legitimate method of analysis.

Hedge fund manager Raj Rajaratnam involved the mosaic theory as his defense during his insider trading trial in 2011 yet was eventually found liable.

Analysts utilizing mosaic theory ought to reveal to clients the subtleties of the information and methodology they used to show up at their proposal; this protocol expands transparency and maintains a strategic distance from allegations of abuse of inside information.

Mosaic Theory versus Talk Method

Mosaic theory closely lines up with the talk method, a company analysis technique promoted by investment master Philip Fisher in his 1958 book "Normal Stocks and Uncommon Profits."

Investors who utilize the gossip method make determinations about a company by sorting information out utilizing firsthand knowledge from conversations with employees, competitors and industry specialists. Both the mosaic theory and the gossip method gather small bits of non-material information and add them together to form a material end.

Special Considerations

Simpler access to information makes the mosaic theory more accessible to do-it-yourself (DIY) investors. Non-material information may be collected in the accompanying ways.

10-K Reports

Investors who have a capable comprehension of accounting concepts, for example, profit and loss statements and balance sheets, can scour the company's financial performance for peculiarities. You can access 10-K reports on the Securities and Exchange Commission's (SEC) website.

LinkedIn and Glassdoor

These websites give valuable understanding into a company's employees from customer service delegates to senior management. Investors could possibly make decisions about the labor turnover rate and level of employee satisfaction by evaluating client profiles and posted content.

Google Trends

Decide whether there is robust consumer demand for a company's products and services by utilizing this Google research device. For instance, an investor might presume that a company is likely to receive a takeover bid from a multinational corporation due to strong demand for another product it sells in a foreign market.

The Pew Research Center

This site gives investors impartial macro bits of knowledge about current trends, attitudes, and issues that are molding the world. For example, Investors could discover that a company is significantly lopsided with public sentiment about a specific issue, which may seriously impact its revenue.

Features

• This extensive variety of information is utilized to assist the analyst with deciding the company's stock value and whether the stock ought to be prescribed to clients.
• The mosaic theory necessitates that the analyst gathers public, non-public, and non-material information about a company.
• The mosaic theory is a style of financial research wherein the analyst utilizes different resources to decide the value of a company, stock or other security.