In his recent fourth-quarter letter to FPA Crescent shareholders, Steven Romick says he’s continuing to be patient in an overvalued market environment.

“We wish we had made more money for our investors (ourselves included) but it’s not in our DNA to
commit capital when the potential profit doesn’t adequately outweigh the prospects for loss,” Romick writes in discussing the Q4 underperformance of his fund, which still has a strong long-term track record. “This was the case last year, which explains our 54.3% average risk exposure. … There are times when we are focused on making money and there are times when we place more weight on protecting capital. This time, it’s the latter.”

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A couple interesting notes from Romick’s letter:

• 2014 was the worst year for active managers since
1997. Just 14% of managers outperformed the market thanks partly to little breadth.

• While large stocks like Apple, which added 1.3% to the S&P 500’s return, dominated in 2014, the average stock in the Russell 3000 gained just 5.5%.

• The median NYSE Price/Earnings ratio is now more than 20x, a post-WWII high, and the median Price/Cash Flow is also at a high.

• The number of hours of work required for people in the U.S. to buy one unit of the SPDR S&P 500 ETF (based on median earnings) is near a 20-year high.

In this environment, Romick says he’ll ignore market fluctuations and continue to focus on evaluating businesses and striking when their prices are right. One business he’s bought recently: industrial conglomerate UTX.

Click here for a copy of Romick’s letter.