[shoover]

You can't really out-diversify the entire economy tanking.

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...

[wdewind]

The major point of OPs statement is that while sometimes you can get lucky for a short period of time (which is what you just cherrypicked), for an endowment you can't really do stuff like that because you are so big and have such a long term perspective. Regardless, I'm not seeing the narrative you describe in your graph.

[shoover]

I agree with the OP's point, but you mentioned 2008 and what happens after that and I'm saying you can diversify in a way that handles those kinds of economic events. (The strategy I mentioned also got really lucky in the 70s and held up cumulatively since then. Of course you can make it unlucky by picking different dates, too e.g. ignore the 70s or 2001 or 2008.)

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.

[wdewind]

Sorry but your examples don't add up. You're showing a 20 year time frame of outperformance, and admitting there are places where performance is a negative, and then claiming all of this shows that there is a strategy that works well all the time. Definitionally this is not true. Correct me if I'm misunderstanding, totally possible.

[shoover]

Sorry the examples are confusing. I mention periods of relative underperformance as a nod to your cherrypick comment: yes, the time frames matter in both directions. The question is how much the strategy goes up or down relative to the benchmark and for how long.

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...

[2] http://portfoliocharts.com/calculators/