Top manager Whitney Tilson says the environment has become tough for value investors, but adds that he’s still finding some bargains out there.

“This is not an ideal environment for a value investor like me because to find wonderful bargains it helps to have some distress in the market — or at least some area of the market — but there’s very little of this today,” Tilson wrote in his latest quarterly letter (hat tip to ValueWalk.com). “The major indices are at or near all-time highs and, for example, the VIX, a volatility measure of the S&P 500, dropped 30% during the first quarter. Nevertheless, I’m confident that I can continue to find attractive investments.”

Tilson says he’s guided by Warren Buffett’s famous saying, “Be fearful when others are greedy and greedy when others are fearful.” He says he doesn’t think greed “has reached the point that we’re in a stock market bubble (the bond market is another matter!), but our fund is quite conservatively positioned right now because valuations are full, complacency is high, and bargains are scarce — and there are plenty of things that could change this.” Among the risk factors he sees: a tepid recovery in the U.S., recession in Europe, a “potential mother-of-all-real-estate/infrastructure bubbles bursting in China”; and bankruptcy for Japan, as well as a conflict in Korea.

Tilson says his fund is 66% long and 22% short, and he had about a third of the fund in cash in the first quarter. A key question for U.S. stocks, he says, is profit margins, and whether they can remain at all-time highs. Historically, margins have always reverted to their means, and he thinks the fund’s high cash position and low stock exposure has sit well-positioned to benefit if such reversion occurs.