Mosaic

The term 'Mosaic' in investing refers to the Mosaic Theory. This is a legal and ethical framework that allows investment analysts to piece together bits of information to form a meaningful conclusion about a company's value, even if some of that information is not public. Think of it like building a mosaic artwork: individual tiles may seem insignificant, but when skillfully arranged, they create a complete, valuable picture. The core idea is that an analyst can combine public information (like company reports) with non-public, non-material information (like observations from a factory tour or general conversations with suppliers). As long as the analyst doesn't use any single piece of material non-public information, the final conclusion—the “mosaic”—is the product of their own diligent research and skill, not illegal insider trading. This concept is the bedrock of legitimate, deep-dive financial analysis and is crucial for any serious investor to understand.

The Mosaic Theory isn't about getting a single secret tip; it's about the patient, creative work of connecting dots that others might miss. A great analyst acts like a detective, gathering clues from various sources to build a case for or against an investment.

The information an analyst gathers falls into two main, legally distinct categories.

This is the easy part. It’s information accessible to anyone who cares to look for it.

• Official company filings like 10-K reports and quarterly 10-Q reports.
• Company press releases and investor presentations.
• Financial statements and conference call transcripts.
• News articles and reputable industry reports.

This is where the real skill comes in, and where the legal lines are drawn. This is information that isn't widely disseminated but isn't important enough on its own to move the stock price. It’s the “scuttlebutt” that legendary investors like Peter Lynch championed.

• Direct Observation: Visiting a company's stores to see how busy they are, or counting the number of trucks leaving a factory.
• Industry Conversations: Talking to a company's customers, suppliers, or even competitors to get a general sense of business trends, product quality, or management's reputation. The key is to ask general questions, not for specific, confidential data. For example, asking a supplier “How's business in the widget industry?” is fine. Asking “How many widgets did XYZ Corp order from you last month?” is not.
• Expert Networks: Consulting with industry experts to understand technical aspects of a product or the competitive landscape.

The Mosaic Theory provides a crucial defense against accusations of trading on illegal information. However, the line can be thin, and crossing it has severe consequences.

The entire Mosaic Theory hinges on avoiding one thing: Material Non-Public Information (MNPI). This is the forbidden fruit of investing.

• Material means the information is significant enough that a reasonable investor would likely consider it important in making an investment decision. In short, it could move the stock price.
• Non-Public means it has not been shared with the general public.

Examples of MNPI include:

• Unannounced quarterly or annual earnings figures.
• A pending merger or acquisition that has not been made public.
• A major product failure or a significant new drug approval.
• News of an impending regulatory investigation.
• A CEO's plan to resign.

Receiving and trading on this kind of information is illegal insider trading, period. The Mosaic Theory is not a loophole to justify it.

Value investing, the philosophy championed by figures like Benjamin Graham and Warren Buffett, is built on performing research that is deeper and more thorough than the market's. The Mosaic Theory is the intellectual and legal framework that makes this possible. A value investor doesn't look for hot tips. Instead, they build a deep, holistic understanding of a business by patiently assembling a mosaic of information. This hard work is what can lead to an “informational advantage”—not an illegal one, but one earned through diligence, curiosity, and skill. It allows an investor to see the true, long-term value of a company that the market, with its short-term focus, has overlooked.

Imagine you're analyzing a pizza chain, “PizzaPlanet Inc.”

1. Piece 1 (Public): PizzaPlanet's latest quarterly report shows flat sales, and the stock has fallen.
2. Piece 2 (Public): News articles discuss the fierce competition from new, aggressive delivery apps.
3. Piece 3 (Non-public, non-material): You visit several PizzaPlanet locations on different nights and notice their new drive-thru lanes are consistently packed, a detail not mentioned in their reports.
4. Piece 4 (Non-public, non-material): You talk to a manager at a local cardboard box supplier. You don't ask for PizzaPlanet's specific order numbers. You simply ask about general trends, and they mention that orders for custom-sized pizza boxes have been surprisingly strong across the board for all their clients in the region.
5. Piece 5 (Public): You dig into local government permit filings online and discover PizzaPlanet has filed for dozens of permits to remodel stores to add these new drive-thru lanes across the country.

The Mosaic: Your conclusion is that while overall in-store sales might be flat, the new drive-thru initiative is a massive, unappreciated success. The market is focused on the old story (competition), but your mosaic of clues points to a powerful new growth driver. This conclusion is material and highly valuable. But because it was assembled from public records and non-material observations, your analysis is perfectly legal and a prime example of the Mosaic Theory at work.