This form of ‘gambling’ does seem to produce the highest return on average over all other methods. Decreasing diversification leads to a wider range of possible outcomes, with a disproportionately larger probability of a negative outcome. Intentionally under diversifying relative to an index in an attempt to add value (active share is a metric of it, basically it measures how diversified you’re compared to the index).
As active share increases the results of portfolios differ more from the index (as could be expected), but with lower average returns. Showing that having less diversification lowers returns. This is because only a small percentage of stocks drive most returns (entire gain in US stock market since 1926 is attributable to only 4% of stocks), thus we would want to hold as much as possible to just have those stocks. Diversification is the only thing that actually increases the returns of a portfolio without increasing risk (measured in standard deviation), or reduces risk without decreasing returns (depends on how you phrase it but it boils down to the same thing).
Even more research that backs this up:
As you said this approach is even worse than buying a basket of diversified stocks as this leads to increased emotion, stock picking and time out of the market (all things which decrease expected returns for an investor).
Visualasition:
A random walk down wall street really illustrates why active trading shouldn’t be done, if you think you have an edge over professionals who even themselves significantly underperform with their (presumably greater) resources, go ahead. Only active trading I could think of that actually provides good returns is providing liquidity or being in the business of being the connection between an ETF and the market (the market maker who sells/redeems ETF units when the premium gets too high/low and buys/sells the underlying, effectively arbitrage).
Just How Much Do Individual Investors Lose by Trading? (if the above visualization wasn’t enough)
For timing the market we all maybe remember this thing:
Sorry for the lecture (I probably wrote down a bit too much at this point 
) but diversification is like the only ‘free lunch’ in investing as it does increase expected returns without actually increasing risk (measured in standard deviation), while active trading doesn’t really work. There’s a place and reason for stock picking and having reduced diversification but it isn’t because of higher expected returns but more for investor psychology. Y’all now go and enjoy life!