Mosaic theory
Reaching a conclusion that would move a price by combining public information with non-material private pieces. The analyst built it rather than received it, so it may be used.
Where you will meet it
Mosaic theory appears in 5 learning outcomes on the CFA syllabus. A few of them:
- Use Standard II (Integrity of Capital Markets) to judge a case
“Possessing such information means neither acting on it nor causing others to, and the mosaic theory is the permitted route around it: conclusions built from public information and non-material non-public pieces are the analyst's own work, however valuable.”
- Show a deep grasp of CFA Institute's Code and Standards by using them to resolve particular cases
“The mosaic theory protects conclusions built from public information and nonmaterial nonpublic scraps, even when the conclusion would have been material had management stated it.”
- Show firm command of the Code and Standards by applying them to professional integrity cases under Standard II, Integrity of Capital Markets
“The mosaic theory still protects a conclusion built from public data and nonmaterial scraps.”
- Put the Material Nonpublic Information standard, II(A), into practice
“The mosaic theory permits reaching a material conclusion by combining public information with nonmaterial nonpublic information, which is the legitimate core of analysis.”
Practise it
Practise mosaic theory until it is automatic: questions that explain every wrong option.
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