Mosaic Theory

So, I thought for level 3 I’m actually going to open up ethics and try not to fail it for once. BTW, it’s not true if you fail ethics you fail the exam. That’s me.

Questin with Mosaic. Been going thru some Qbank stuff. With Mosaic theory, I get that we can “USE” material non-public if it was produced by combing non-public with public info. I’ve lost the question but with material non-public info obtained by Mosaic, can we “TRADE” on it.

One question, has an analyst release an investment recommendation report to his clients and it was good to go for use with mosaic. But another question had mosaic but he couldn’t trade. Is Trading only allowed if it’s made public?

Much appreciated all.

You may not use material, nonpublic information.

Period.

Ever.

The mosaic theory says that it’s OK to combine nonmaterial, nonpublic information with public information. You may use that combination all day and twice on Sundays.

But you mayn’t use material, nonpublic information.

Thanks S2000.

But then what is the point of Mosaic Theory? I thought if you combine non-public and public an analyst may end up with material non-public information. Isn’t that what Mosaic is? This info is useless?

Thanks for answering. I know it’s a bit odd getting this in a level 3 forum but I did get a solid whoopin on these sections for level 1 and 2.

Thanks again.

@cipherap15 its not useless…people actually go through great lengths to take the mosaic theory to their advantage (or so they think anyway). The classic example people use is seeing two CEOs out at lunch. Seemingly harmless, but the more you ponder you realize that they are working for firms in the same industry, who are competitors and struggling. You go back to the office and diligently use public financial information and firm disclosures and decide if they merge their firms they would be much better off and become powerhouses. You think about it overnight and decide that there is a very good chance this is a big M&A prospect and snatch up the stock of the firm being acquired.

In conclusion, you saw two CEOs out at lunch. This is non-material, non-public information being used alongside with material public information. Not a violation.

Got it. Thanks. That’s great and much appreciated. In conclusion we end up with material, public info thru the mosaic theory which we do use.

I thought mosaic theory was using your knowledge and combining non-material, non-public information which ends up being material, non-public information when looking at it all. And i thought you could use material, non-public info when obtained this way.

Like S2000magician said you can NEVER, EVER, NO EXCEPTIONS, use material nonpublic information, period. You can use material, public along with nonmaterial non public though. What can get difficult in real life is deciphering what material is but CFAI gives you a good framework for knowing. I usually go with the “conservative” side in real life. Its just not worth gambling with. Once you have something like that on your history your doomed forever.