It's hard to imagine generating much envy as you describe your portfolio of downtrodden losers. However, the returns generated by a diversified portfolio of distressed companies more than make up for the glamour of trying to uncover tomorrow's Microsoft. It appears that investors have been paying too much for growth firms and too little for value firms. Of course, the Fama-French research was subjected to all the normal indignities of any revolutionary study. However, enough studies in other markets and other time frames have validated their original work.
Value stocks appear to perform equally well in global markets.
The three-factor model goes a long way toward explaining the returns of many mutual funds and portfolio managers. It's even possible to examine the pattern of a fund's past performance and make a very close guess as to the portfolio composition. In most cases, style accounts for far more of the performance than does skill, cunning, or luck. By incorporating explanations of stock returns based on size and BTM ratios, we are able to more confidently predict expected returns when modeling portfolios. This methodology represents a measurable improvement over using unadjusted, raw-data past returns as the expected future rates of returns.