How to Choose Penny Stocks Manually

By Peter Leeds

Whether you first screen your penny stocks by using an automated screening tool or just hear about an interesting company on the news, you absolutely must perform manual due diligence on any potential investments. This means taking each individual company, one at a time, and reviewing it from head to toe.

Because this is the most time-consuming aspect of any research you’ll perform, drop any company from your review as soon as you realize that you won’t be investing in it for any reason. For example, perhaps most aspects of the company look great, but then you realize that it’s being sued. If you’ve decided to avoid any companies with litigation overhanging them, immediately cross that company off your list and move on to other stocks.

Investors often ask, “How much due diligence is enough?” Because doing your own research and analysis is a truly bottomless duty, how would anyone know when to stop? A general rule of thumb is to keep doing your research until you get to the point where you would only blame yourself if the investment didn’t do well.

Even if you get picks from a source who was correct ten times in a row and is making you tons of money, if any part of you would be upset at that source if their next selection sank, then you need to keep doing more diligence. Do due diligence until you take responsibility for the trading choices.