I've always been amazed at how much grief activist investors get. Management teams often attack them as being interested in breaking up the company for a short-term profit at the expense of longer-term shareholders. But the thing is, an activist investors interests are almost always better aligned with those of investors than the management. The break-up or sale of the company (or whatever change the activist is pushing for) may hurt the wallet of the entrenched managers. He may have a vested interest in acting in ways that are not in the best interest of shareholders. But as an investor, the activist fund's interests are essentially exactly the same as the shareholders: they want a higher stock-price.

In Sunday's New York Times, investment newsletter guru Mark Hulbert wrote about a study conducted several academics called "Hedge Fund Activism, Corporate Governance, and Firm Performance." The results of the study are not surprising, to me anyway. According to study, stocks where activists are involved outperform the market by 7% on average over the 2 weeks leading up and the 2 weeks after the 13-D filing indicating ownership of greater than 5%. Furthermore, Hulbert writes that "In the year after that initial month of market-beating performance, the average target company's stock kept pace with the overall market. And over the subsequent two years, the professors also found, the operating performance of the target companies improved markedly."

So what is it managers are really running scared about?