Most of the myths regarding market moves are not worth the paper they're printed on. That said, one old wives' tale worth noting, and even following, is the January effect.

For whatever reason, small-cap stocks do indeed outperform their larger brethren during the month of January.

I recently provided a list of 5 Stocks for the January Effect. On the list was a former high-flyer that lost enough market value to now qualify as a small-cap stock -- NutriSystem (NASDAQ: NTRI).

NutriSystem captured the investor imagination with its unique solution to weight loss and weight management. The company's home delivery of prepackaged meals promised ease of use with results.

Given the huge audience for such a solution, NTRI presented investors with a great growth opportunity. Even though it took a few years to catch on, investors eventually got the idea.

NutriSystem became a darling of the momentum crowd in 2005. In the span of a year and a half, the stock moved from the single digits to above $80 per share. Coinciding with a big marketing program, revenue and investors seemed to grow in tandem.

That's all well and good, but at some point valuation does matter. That time usually comes when growth or results fail to meet elevated expectations. For NTRI, that started to happen in mid-2007.

In no time flat the stock lost more than half its value as the momentum crowd fled. The stock has been trading on a flat line around $15 per share for most of 2008.

This week, I've been working on a list of penny stocks to buy. Given that any recovery is likely to be led by the small-cap space, I'm looking closely at the smallest of the small to drive my portfolio higher.

Not for the faint of heart, these so-called penny stocks can generate some really fat returns. I'm not talking about just doubling your money here. Stories abound of returns of 300% or much more on stocks that started out trading for less than $5 per share.

One of the stocks on my list is in the poker space, and to give you a bit of a preview, I want to visit one other player in the space that was worthy of consideration, but did not make the final list.

CryptoLogic (NASDAQ: CRYP) is a leading provider of software for the Internet gaming space for non-U.S. players. It is that last piece about non-U.S. players that has me quite excited about the stock.

The company has benefited from the explosion of online poker playing, but stagnated due to tough enforcement of rules and regulations against U.S. players. It is illegal to gamble online, and that is a huge problem for companies like CRYP.

My take on this stock is that regulations will change for a few reasons. At the top of the list is a new administration that claims to bring a non-lobby-based form of governing to Washington.

That means the Vegas lobby is out of luck when it comes to online gaming. Every other modern country allows it, why not ours?

Another big plus is the taxable revenue that would come from legalizing online gaming. Given the economy and massive debt loads, one would think this would make sense.

I think the space makes for a reasonable speculation, and CRYP looks like a strong play in my opinion.

With shares at $2 and change, off a 52-week high of $21.97, there is plenty of fuel here.

Of course, there is risk, but that's what penny stocks are all about.

I am merely suggesting that there is a legitimate trigger here for some serious upside. Sometimes that's all it takes for a penny stock like CRYP to take off.

And if you're interested in penny stocks, be sure to check out my Top 5 Penny Stocks to Buy Now.

Jamie Dlugosch is a contributor to InvestorPlace.com.

Update: See the latest posts about stocks to buy from BloggingStocks.

After nailing the top in Apple (NASDAQ: AAPL) and warning investors this would be a painful year, I've been getting hundreds of emails from people asking me what to do next? As if suddenly after two correct predictions, I'm Nostradamus or David Blaine!

Make no mistake, I'm neither a forecaster nor a magician, I'm just a trader who bases his decisions around these key elements: a distrust of everyone and every company on Wall Street (made easier by the likes of MBIA (NYSE: MBI), E*Trade (NASDAQ: ETFC) and Countrywide Financial (NYSE: CFC); a respect, bordering on religion, for charts and a quick trigger finger if the charts turn against me. I know people want longer term predictions, but I believe those to be 100% guessing games and potentially hazard to your investment health. Pregnant women should avoid them at all costs. Just kidding, it's fine for some people, but I like to make my predictions and cash out, so I can enjoy stress-free weekends if you catch my drift.

So, here's what I see right now: two weeks in and we're already halfway to my 10%-down market prediction, and Apple is down 15% (take that you stereotypical cheerleaders, go date some football players)! The markets are definitely rolling over, and while it's usually a long, drawn-out process, the charts seem to have little concern for what's normal as all the major indices have formed perfect head-and-shoulders patterns (a very bearish sign) and investors are rightfully freaking out.

Commercial radio audience surveys have traditionally required participants to keep a daily written log of listening activity. Now, the leading U.S. provider of survey statistics has devised an easier way. Listeners can just carry a cellphone-sized device that detects inaudible program codes and records the data automatically.

Arbitron (NYSE: ARB) is a media and marketing information company. The firm surveys radio listeners in some 300 U.S. markets, gathering information about listening habits, income, lifestyles and shopping habits. More than 4,600 radio stations and 2,100 advertising agencies subscribe to its services. Arbitron also offers market research to cable TV, internet and outdoor advertising clients. The company has developed the Portable People Meter system, a new technology for commercial radio ratings which will replace its current diary-based system with passive, electronic measurement. Plans call for the PPM to be deployed in the Top 50 radio markets by 2010.

Two UC Santa Barbara Grad students analyzed Jim Cramer's picks on his show Mad Money and reached an unsurprising conclusion. From the Economics Blog on Portfolio.com: "Mid- and large-cap post-pick excess returns are generally of the correct sign, though the magnitude of these returns is relatively small. Where Cramer displays the most ability is with small-cap stocks, in both his caller and non-caller picks"

This is consistent with the overall trend of money managers being most able to create alpha when investing in small-caps. Given Cramer's limited time for researching any one stock, and the vast quantity of research already done on almost every large-cap, how can anyone expect him to identify ideas that aren't already conventional wisdom and priced into the stock? Markets are just too efficient at that level for superficial analysis to yield much in the way of results.

But in small-caps, research is much more likely to yield an edge.

Perhaps most interesting, the students found that Cramer's picks generated the most excess returns when he made small-cap sell calls.

So perhaps the strategy for people looking to profit from watching Mad Money is to short small-caps where Cramer's pounding the "Don't buy it!" button.

One asset class that has outperformed the broad market for nearly a decade is small cap. Since the low in April 1999, the Russell 2000 Index -- which has an equivalent exchange-traded fund, or ETF (AMEX: IWM) -- has gained 80 percentage points more than the S&P 500 index.

Over the past few months, however, this group has begun to languish. Recently, the small cap benchmark broke below key short- and long-term support levels relative to the S&P 500, suggesting that, in comparative terms at least, the good times for small company shares may be over.

Interestingly, this turnabout comes at a time when the stock market has been frothy, but has not seen widespread participation by small investors. I wonder if the two developments are somehow related?

Michael Panzner is a 25-year veteran of the global stock, bond, and currency markets and the author of Financial Armageddon: Protecting Your Future from Four Impending Catastrophes and The New Laws of the Stock Market Jungle: An Insider's Guide to Successful Investing in a Changing World.

The Kentucky Derby is, without a doubt, the most exciting horse racing event of the year. Millions of people who don't even watch horse racing pay attention to it, and it's featured all over the news. With all the coverage and excitement surrounding the race, it may be tempting to place a bet on it. Heck, even Jessica Simpson won a few dollars betting on it a few years ago on an episode of her show The Newlyweds (Sadly, I lost a pretty penny betting that their marriage would last more than five years).

But here's the best advice I can give you regarding the Derby: Don't bet on it. As the most-watched race of the year, you won't have any edge -- there's too many other experts watching it. In his book Picking Winners, horse-betting expert Andy Beyer advises readers to "Only go to tracks where there aren't a lot of good players so you can clean up."

What does this have to do with investing? Following Beyer's logic, it is also unwise to invest in stocks like ExxonMobil Corp. (NYSE: XOM), Goldman Sachs Group (NYSE: GS), and Wal-Mart Stores (NYSE: WMT). There are simply too many good players handicapping these stocks for us to be able to find good deals. Remember: In horse racing, the object is not to bet on the horse most likely to win: That will nearly always be the favorite. The object is to bet on the horse that offers the best risk/reward ratio -- the horse that has a better chance at winning than its odds would indicate. This is a market inefficiency, and it's more likely to be found in small-caps or small tracks than big-caps or big tracks.

Sunday's New York Times had a column by Paul J. Lim about the performance of large caps vs. small caps in 2006. Small cap stocks beat the big caps this year, but only because of a huge January, where small caps soared over 7%. The piece addresses the difficulty of handicapping which group will outperform. Financial planner James A. Shambo said that "the market has a tendency to do what most of us think it won't do. It loves to humiliate us."

While it seems clear that picking which category is likely to perform best in any given year is a fool's game, for long-term investors, small-caps have outperformed handily over time. For stock-pickers (which most readers of this blog probably are), it is clear that small-caps are probably the most lucrative source of opportunities. In his book Real Money, CNBC pundit Jim Cramer talks about the strategies of horse race handicapping legend Andrew Beyer, and how they can be applied to financial markets. One of his maxims is: Only go to tracks where there aren't a lot of good players so you can clean up.

The analogy here is obvious. According to the efficient market hypothesis, there are so many people analyzing the stock market all the time that stock prices are always right. Prices are in equilibrium, and the only way to earn superior returns is to take above-average risks. This theory may hold reasonably well for large stocks that are well-followed by Wharton-trained analysts and an army of hedge fund managers. But what about small stocks that are completely off the mainstream radar? Here, people who are willing to devote the time may find undiscovered gems that Wall Street analysts miss because they're too busy endlessly analyzing stocks like GE and Exxon. As Peter Lynch has said, "he who turns over the most rocks wins the game."