Right, in 2008 when the entire economy tanked they also tanked. You can't really out-diversify the entire economy tanking. What happened in the years after that? Oh right that paper has no idea because it was last updated in 2010.
Sometimes you can. Chart [1] shows the ratio of a particular diversified portfolio's value (4x25 Permanent Portfolio) to the three fund portfolio's value starting in 2005. The ratio increases sharply in 2008-2009 and retains its edge through the subsequent stock bull market.
[1] http://morning-wave-7809.herokuapp.com/#iau,vti,shy,tlt/vtsm...
The chart page doesn't explain things very well, so it takes a bit to unpack, but the point of the chart is actually to give a better idea of comparative performance over a time period rather than focusing on a particular number like average return. Basically it's dividing the current value of one portfolio by the other at each point. The ratio shows the ebb and flow of the two portfolios against each other. John Bogle's speech [1] and this forum [2] probably explain it better.
[1] http://www.vanguard.com/bogle_site/sp20020626.html
[2] https://www.bogleheads.org/forum/viewtopic.php?t=138973
EDIT: cleaned up the first paragraph.
My claim with respect to this thread is that there is a strategy that outperforms in certain conditions like the 2008 selloff and 1970s inflation and does so without the risk of losing the gains as soon as the market turns around.
Relative to stocks or 60/40 during a bull market, it doesn't look so good, but it still generates positive returns, holding for some time any edge gained during the earlier conditions.
The overall result is a smooth climb, so I do claim it works well (enough) all the time. I don't claim absolute outperformance long term.
The best chart for what I'm trying to show is beneath the data table in [1]. And the Envy calculator at [2] has great data back to 1972 for different assets (and lets you change the start date).
[1] http://www.crawlingroad.com/blog/2008/12/22/permanent-portfo...
But GP's claim seemed (to me) to be that that's exactly what university endowments do (or attempt to do). GP claimed that universities aren't looking for return or low volatility, they're looking to 'be fine' when the economy tanks. To check whether they succeeded, I looked at university endowment performance during a period when the economy tanked, and found that they still didn't do any better than an average index fund investor would have.