7 October 2026
When Livewire Markets asked four fund managers what makes a steady compounder on the ASX, our portfolio manager Chris Scarpato started with a line that shapes how we look at every business: “revenue is vanity, profit is sanity and cash flow is reality.”
Chris told Livewire that identifying a compounder means looking beyond the profit and loss statement, which can be flattered by creative accounting. We look for franchises with a durable competitive moat, and that moat shows up in the consistency and growth of free cash flow.
The second test is what a board and management team do with the cash. We prefer long-tenured senior management, with incentives aligned to shareholders and other key stakeholders, because that is “the right environment for long-term thinking and wealth creation.” Good capital allocation means balancing returns to shareholders through dividends and opportunistic buybacks against reinvesting in the business at superior rates of return.
Chris’s two picks for the article meet both tests.
News Corporation is a portfolio of media and digital franchises with leading positions and strong moats, including a stake of around 61% in REA Group, alongside Dow Jones, HarperCollins and leading newspaper mastheads. Its competitive position gives it durable pricing power, most visibly at REA and Dow Jones. Strong, consistent free cash flow has allowed management to return capital through buybacks while also completing accretive acquisitions.
ResMed has had only two CEOs since its founding in 1989, father and son Peter and Mick Farrell. That continuity has kept the company focused on a serious and largely undiagnosed health issue, sleep apnoea. Sustained reinvestment in research and development and in manufacturing has given ResMed the leading global position in CPAP devices and masks, and decades of earnings and free cash flow growth.