Is there a little book that beats "The little book that beats the market"?

Recently, I looked at the little book that (still) beats the market.

Being a revised edition of the orignal (hence the "still" in the title), towards the end of the book, Greenblatt responds to suggestions for improvements to his magic formula.  Interestingly, he tried a number of these suggested improvements using his simulation tool, and despite sounding like good ideas, none of the suggestions actually improved the portfolio performance.

This reminded me of the classic iterated prisoner's dilemma competition, where the simple winner (tit-for-tat) of the first competition also won the second competition, despite all the new entrants in the second competition knowing exactly how it worked to win the first competition, and being written to specifically beat tit-for-tat.  Each of the so-called "improvements" on tit-for-tat could beat tit-for-tat, but couldn't outperform tit-for-tat on average against all of the other strategies.

So, I pose the question - can the magic formula be improved, or does it's elegant simplicity outperform any variation?
I recently talked about the three-boxes way to analyze investing strategies, and the importance of keeping in control of the timing of transactions.  Let's review the magic formula in this context.

Does Greenblatt's magic formula try and make money during the "buy" point of the transaction?

Clearly yes.  By tending towards companies at "below average prices",Greenblatt is bargain hunting.

Does the magic formula try and make money during the "hold" phase of the transaction?

Yes.  By tending towards companies that are "above average" and have high returns on capital, money is expected to be made whilst holding them.

Does the magic formula try and make money during the "sell" point in the transaction?

No.  By selling at an arbitrary point in time, irrespective of price, the formula is not explicitly trying to make money at this point.  Instead, it is trying to free up capital for more "buy" money making opportunities.   Also, by selling at a fixed point in time, the magic formula is also losing control of the time of the transactions.

One potential limitation of the magic formula that Greenblatt identifies himself, is that the strategy is "100% long the stock market".  A slight variation on this limitation is that the asset allocation is 100% stocks, and 0% cash (after the initial year).  I've mentioned before that one of my strategies was considered sub-optimal because I considered cash different to stock, which I didn't accept, but I can't help but think that it is sub-optimal to not consider cash at all.

Based on this simple review, it seems that there may be opportunities to make improvements to the magic formula.  I'll consider some of these in more detail later, but here is my thinking on such potential improvements:

• Use less than 30 companies, or perhaps change the weighting of the 30 companies to tend towards those higher in the list
• Define stricter "buy" criteria, for example, to ensure that "average cheapness values" and "average quality values" are always improving, and be prepared to hold cash in the interim.
• Define stricter sell criteria, and be prepared to hold companies for longer than 12 months. 

I really need to give some more thought to the "cash" topic, as that is where is see the biggest improvement in most others investing strategies.