Myths About Penny Stocks in Malaysia: Separating Fact from Fiction

Demystifying Common Misconceptions to Make Informed Investment Decisions

Introduction

Penny stocks—typically referring to stocks that trade for less than RM1 on Bursa Malaysia—are often the subject of heated debate among investors. While some see them as an opportunity for high returns at a low entry cost, others dismiss them as too risky or even “gambling.” This polarizing perception has led to numerous myths and misconceptions.

In this blog post, we debunk some of the most common myths about penny stocks in Malaysia, provide insights into how they actually behave in the market, and offer guidance for making smarter investment choices.

What Are Penny Stocks?

In Malaysia, a penny stock usually refers to a stock trading below RM1 per share. These stocks are commonly found on the ACE Market or Main Market of Bursa Malaysia and are often issued by small-cap or mid-cap companies.

👉 Learn more from Bursa Malaysia’s market structure:
https://www.bursamalaysia.com

Myth #1: Penny Stocks Are Always Low Quality

❌ The Myth:
If a stock is cheap, the company must be bad.

✅ The Reality:
While some penny stocks belong to companies struggling financially, not all are low-quality or on the verge of bankruptcy. Many represent start-ups or growing SMEs with limited capital but strong business models. A low share price does not inherently reflect poor fundamentals—it might be the result of market perception or undervaluation.

Example:
Some technology firms listed on the ACE Market began as penny stocks before experiencing significant growth.

Myth #2: Penny Stocks Are Only for Speculators

❌ The Myth:
Only gamblers or short-term traders buy penny stocks.

✅ The Reality:
While it’s true that penny stocks are more volatile, savvy long-term investors can uncover undervalued gems by doing proper research. These stocks often appeal to those with a higher risk tolerance and a desire for diversification, especially in growth sectors like renewable energy, fintech, or logistics.

🔍 Tip: Always conduct fundamental and technical analysis before investing. Use platforms like Rakuten Trade or Bursa Marketplace for tools and insights.

Myth #3: Penny Stocks Don’t Pay Dividends

❌ The Myth:
Low-priced stocks never offer dividends.

✅ The Reality:
While many penny stocks focus on reinvestment over payouts, there are exceptions. Some companies maintain steady profits and dividend policies despite their low share price. It’s essential to look at a company’s dividend history, profit margins, and cash reserves rather than assume they don’t reward shareholders.

📊 Example:
Certain property and manufacturing penny stocks have provided modest dividends to their shareholders consistently.

Myth #4: All Penny Stocks Are Illiquid

❌ The Myth:
You won’t be able to buy or sell penny stocks due to low trading volume.

✅ The Reality:
Liquidity varies from stock to stock. Many penny stocks in Malaysia are among the most actively traded on Bursa Malaysia, especially those in trending sectors like EVs, construction, or tech. Liquidity depends more on market interest than share price.

🧠 Pro Tip:
Check the average daily volume before trading. High volume equals easier entry and exit.

Myth #5: Penny Stocks Are Always Pump-and-Dump Schemes

❌ The Myth:
These stocks are only manipulated by syndicates and speculators.

✅ The Reality:
While market manipulation can occur, especially with illiquid stocks, it’s not exclusive to penny stocks. Bursa Malaysia and the Securities Commission Malaysia (SC) monitor and regulate trading activities. Investors can protect themselves by avoiding stocks with sudden unexplained spikes and watching insider trading activities.

Myth #6: Penny Stocks Can Make You Rich Overnight

❌ The Myth:
Buy low, and it’s only a matter of time before it surges.

✅ The Reality:
Penny stocks can provide high returns, but they are also associated with high risk. Many investors enter without proper analysis, chasing hype instead of fundamentals. Not all penny stocks will skyrocket—and many underperform or remain stagnant for years.

🔍 Example:
An investor who bought into a penny stock based on social media tips may suffer losses if the hype fades quickly.

Myth #7: You Need a Lot of Capital to Profit from Penny Stocks

❌ The Myth:
You won’t make significant gains unless you invest big money.

✅ The Reality:
Penny stocks offer low entry costs, which allows even retail investors to build diversified portfolios without committing large sums. Consistent returns from multiple well-researched penny stocks can lead to long-term capital appreciation.

How to Evaluate Penny Stocks in Malaysia

Here are a few practical tips for Malaysian investors interested in penny stocks:

1. Check Financial Health: Look at balance sheets, income statements, and cash flow.

2. Study the Management Team: Investigate their track record and experience.

3. Analyze Industry Trends: A company in a growing industry may have better potential.

4. Review Bursa Announcements: Monitor quarterly reports and business updates.

5. Use Trading Platforms: Leverage research tools from brokers like Kenanga or Maybank Trade.

Final Thoughts

Penny stocks in Malaysia are not inherently bad, nor are they a guaranteed path to riches. Like all investments, they require due diligence, patience, and a solid strategy. By separating fact from fiction and avoiding common myths, investors can better navigate the opportunities these low-cost stocks provide.

Malaysia-Agent.com