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.
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.
