I agree that we donât need to (and usually donât) play those zero-sum games. The problem is that those zero-sum games are the mechanism for price discovery, and we donât have market price signals in the charity world.
I agree with your point about diversification reducing risk. This is true for empirical uncertainty and for value uncertainty sometimes. If you have a convex utility function, reducing risk has positive expected value, if not, then no.
Mutual funds underperform in an environment where arbitrage exists and prices are at least close to efficient.
Indices donât select the âbest performingâ companies, they usually select the âbiggestâ companies. Here the analogy to the charity world breaks.