how the mosaic theory works
there is an ongoing debate within the investment community as to whether this style of analysis misuses insider information but the cfa institute formerly known as the association for investment management and research aimr has recognized mosaic theory as a valid method of analysis hedge fund manager raj rajaratnam used the mosaic theory as his defense during his insider trading trial in 2011 but was ultimately found guilty analysts using mosaic theory should disclose to clients the details of the information and methodology they used to arrive at their recommendation this protocol increases transparency and helps avoid accusations of misuse of inside information mosaic theory vs scuttlebutt methodmosaic theory closely aligns with the scuttlebutt method a company analysis technique popularized by investment guru philip fisher in his 1958 book common stocks and uncommon profits investors who use the scuttlebutt method make conclusions about a company by piecing information together using firsthand knowledge from discussions with employees competitors and industry experts both the mosaic theory and the scuttlebutt method gather small pieces of non material information and add them together to form a material conclusion special considerationseasier access to information makes the mosaic theory more accessible to do it yourself diy investors non material information might be collected in the following ways investors who have a proficient understanding of accounting concepts such as profit and loss statements and balance sheets can scour the company s financial performance for anomalies you can access 10 k reports on the securities and exchange commission s sec website these websites provide useful insight into a company s employees from customer service representatives to senior management investors might be able to make conclusions about the labor turnover rate and level of employee satisfaction by reviewing user profiles and posted content determine if there is robust consumer demand for a company s products and services by using this google research tool for example an investor may conclude that a company is likely to receive a takeover bid from a multinational corporation due to strong demand for a new product it sells in a foreign market this site provides investors with nonpartisan macro insights about current trends attitudes and issues that are shaping the world for instance investors might learn that a company is majorly out of alignment with public sentiment about a particular issue which may severely impact its revenue 