Still Crazy After All Three Years

The key to this surprising conclusion is Yahoo!'s high volatility, which increases the probability that we will move outside of this bound. If we lower the volatility to the 41.9% seen on the Nasdaq 100, the odds of Yahoo! staying inside this bound increase to 6.72:1.

A successful bet against Yahoo! or any other Internet stock so situated requires a belief that the market is overestimating both earnings growth and volatility. If we extend this premise from Yahoo! to the sector as a whole, we see that the portfolio argument -- buying the group as a call option on an industry -- still holds.

Even better, the members of the DOT or any other Internet index are battle-tested survivors at this point, not the cold-pizza-and-foosball crowd of 1999.

Three years ago, betting against the Internet won. That bet is not likely to be as good today.