What is the Mosaic Theory?

Malcolm Tatum

The mosaic theory is an approach that is sometimes employed to locate and collect information regarding a specific company. Security analysts, investors, corporate raiders, and anyone else with an interest in the securities issued by that company are likely to make use of this multifaceted method of obtaining and analyzing data. The data is collected from the many sources available to analysts and investors, making it possible to arrive at an informed decision about the status of those securities.

Man climbing a rope
Man climbing a rope

There is some degree of controversy surrounding the use of the mosaic theory. Proponents see this method as being a common sense and orderly approach to collecting relevant data, and deciding if stocks issued by a given company should be recommended as investments. Emphasis is placed on qualifying the data collected, since that data may include verifiable information that is widely available to the public, or news items that have just released to the public. The data may also hearsay or rumors that are currently circulating about upcoming events associated with the leadership, product line, or some other aspect of the issuing company. Those who support the use of the mosaic theory believe that any type of information that can be obtained should be taken into consideration as a means of protecting clients from making poor investment decisions.

Critics of the mosaic theory note that while much of the data collected comes from public sources, there are situations where information not yet released to the public may also be included in the assessment process. For some, this creates a situation where there is some concern about the ethical use of that non-public data. The critics often note that since the data is not yet available to the general public, a money manager or security analyst should avoid considering non-public information, since this type of activity could be contrary to insider trading regulation that are in place in a given jurisdiction.

At present, use of the mosaic theory as a valid means of evaluating the stability of a corporation and the value of securities issued by that company is recognized by the CFA Institute. One requirement as outlined by the Institute is that all data collected and considered as part of the evaluation process must be disclosed to the client at the time the recommendation is made. This allows the client to decide if he or she is uncomfortable with any data obtained from a particular source, and take that factor into consideration before making a decision regarding the investment opportunity.

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Discussion Comments


I can see the problem of investment managers using non-public information to guide him in giving advice to his client about an investment. There could be suspicions come up about using information known only to brokerage firms.

The idea that managers must tell the customer about all the data he used to make a recommendation and make sure he understands why the recommendation is being made.

But in the end, money managers are not fortune tellers - they can't predict with any great degree of certainty how any investment will do.


I don't think that it is that difficult for a money manager to gather information regarding a potential investment for a client. The hard part is analyzing the data and putting it together to see relationships. This is about the only way a manager can use the data to predict to any degree, how well an investment will do.

I think the average person could gather the data, but likely wouldn't be able to consolidate the information and make real meaning out of it.

I think the idea of using the mosaic theory of getting information for advice in investing is all right, but the gatherer of information must be knowledgeable enough to choose information that is reliable and useful and then analyze it as a whole.


@MrMoody - It’s called a search engine. Just type in a security and keep searching and gather as much information as possible. Really a lot of this stuff comes down to human analysis. You will have to sift through mountains of data and make your own judgment in the end.


@everetra - I think that both the mosaic theory and the web bots have merit. It makes sense to me. Get as much information as possible, and you can make the best possible predictions, whether you are talking about world events or investments.

That’s the premise behind the trend analyses that some so-called gurus make when they write books about the future.

What I want to know, however, is does software exist which helps me do this stuff on my own? Is there a mosaic software application that will scour the Internet for me and make some prediction about what to invest in?


I think that the mosaic theory sounds very much like another algorithm floating about on the Internet, the so-called use of web bots.

If you haven’t heard, web bots are basically search engines that crawl the Internet and gather as much information as possible about a particular subject.

They may scour news articles, blogs, videos or whatever – and they compile the information and then make a prediction about a future event. The idea seems to be that as the time for an event to actually happen draws near the “scuttlebutt” for that event draws closer and closer, as reflected in increased Internet chatter.

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