Definition of “mosaic theory”

Mosaic theory refers to the use of more eclectic sources of information in order to construct a unique view of a company. Only by having a different perception of a company’s prospects, is it possible to consistently outperform the market. Here are examples of unique sources of information:

Talking to a low level employee of a company about their company

Meeting with the management of a competitor

Talking to brokers and colleagues

Comparing prices of the company’s products in different stores

Testing the company’s product If an investor only talks with the management of a company then they will only able to assess the investment proposition from the information provided by the company. The company spokesman is highly biased and is likely to present a story that the investor will find desirable. Surely, there are many better sources of information about listed companies. We make the effort to uncover as much of this hidden information as possible so that we can form better insights into the companies we research.

Why is mosaic theory relevant to small caps?

Mosaic theory is particularly important for small caps, especially those that are under researched. First of all, there is more opportunity to gain unique insights into small companies which few institutions focus on. This is because the short term performance of small companies is frequently hostage to ambiguous company announcements and speculative trading activity. This leads to potentially higher cases of gross mispricing. Secondly, management of small companies are particularly happy to talk to us regularly. This is because even a small fund manager can move their stock price.

How Glennon Capital utilizes Mosaic Theory

In order to utilize Mosaic Theory, we needed a way to capture all the information that we were collecting. As a result, we have developed a proprietary database, the “Glennon Capital Database,” to record details of company visits, meeting notes and primary valuations. The database also allows us to link what one company says about their competitors onto the records of the competitor. Lastly, the database dynamically calculates numerous financial ratios by drawing together our proprietary numbers as well as the changing share price. There is also screening function which allows us to filter stocks which we should work on.