What Natera Inc. (NTRA): Billionaire Tom Steyer's Stock Pick with Huge Upside Potential Means for Your Personal Finances

Introduction

Billionaire investor Tom Steyer's Farallon Capital has recently made headlines by taking a significant position in Natera Inc. (NTRA), a genetic testing company that analysts suggest could have substantial upside potential. The stock has seen remarkable performance, climbing over 80% in the past year, and some analysts project price targets suggesting further gains ahead.

But here's what matters more than any single stock pick: understanding the investment principles that billionaire investors use—and how everyday investors can apply similar thinking to build lasting wealth. This isn't about whether you should buy Natera stock. It's about understanding what "following smart money" really means, how to evaluate growth stocks in your own portfolio, and why one investor's "huge upside potential" could be another investor's significant risk.

Let's break down the financial concepts at play and explore what this moment can teach us about managing our personal finances more effectively.

The Core Concept Explained

When news headlines trumpet that a billionaire has invested in a particular stock, they're highlighting something called institutional investor activity—the buying and selling patterns of large investment firms, hedge funds, and wealthy individuals who manage significant amounts of capital.

Institutional investors are professional money managers who typically invest $100 million or more. Their trades are tracked through SEC filings called 13F reports, which large investment managers must file quarterly. When someone like Tom Steyer's firm takes a position, it becomes public knowledge within 45 days of the quarter's end.

The term "upside potential" refers to the estimated amount a stock's price could increase from its current level. If a stock trades at $100 and an analyst believes it could reach $150, that represents 50% upside potential. However, this is always an estimate, not a guarantee.

Growth stocks like Natera are companies expected to increase their revenues and earnings at rates significantly above the market average. Natera operates in the genetic testing space, providing tests for cancer detection, women's health, and organ transplant monitoring. In 2024, the company reported revenues of approximately $1.7 billion, representing year-over-year growth of around 56%.

Here's the critical distinction many investors miss: high growth potential typically comes with high volatility. Volatility measures how much a stock's price fluctuates. The S&P 500 historically has annual volatility around 15-20%, while individual growth stocks can experience volatility of 40-60% or more. Natera's stock, for instance, has ranged from approximately $50 to over $180 per share within a 52-week period—that's dramatic movement that can benefit or hurt investors depending on their timing and strategy.

Understanding valuation metrics is equally important. Growth stocks often trade at high price-to-sales (P/S) ratios because investors are paying for future potential, not current profits. Natera's P/S ratio has traded at multiples significantly above the broader market average of around 2.5x sales. This isn't inherently good or bad—it reflects expectations that must be met for the stock price to be justified.

How This Affects Your Money

Whether or not you ever invest in Natera specifically, understanding these dynamics affects your financial decisions in concrete ways.

For retirement savers: If you contribute to a 401(k) or IRA, you likely own growth stocks through index funds or target-date funds. The S&P 500 includes healthcare and biotech companies that compete with or partner with firms like Natera. A $10,000 investment in an S&P 500 index fund typically includes approximately $1,300 in healthcare sector exposure. Understanding how growth stocks behave helps you stay calm during market volatility.

For individual stock investors: The average individual investor significantly underperforms the market—earning about 2.5% annually compared to the S&P 500's approximately 10% long-term average, according to DALBAR research. Much of this underperformance comes from buying high (after hearing about hot stocks) and selling low (during downturns). When headlines tout "huge upside potential," the stock has often already experienced significant gains, meaning late investors may be buying near peaks.

For healthcare consumers: Natera's business model relates to diagnostic testing that many Americans may encounter. Genetic testing for cancer screening, prenatal conditions, and transplant monitoring can cost patients between $300 and $10,000 depending on insurance coverage. Understanding that these services exist—and checking whether your insurance covers them—is a practical financial consideration separate from investment decisions.

For portfolio allocation: Financial planners typically recommend limiting individual stock positions to 5-10% of your total portfolio. If you have $50,000 invested, that means no more than $2,500-$5,000 in any single company. This rule exists precisely because even "sure things" recommended by billionaires can decline 30%, 50%, or more.

Historical Context

Following billionaire investors into stocks has a mixed track record that's worth examining.

The Valeant Pharmaceuticals lesson (2015-2016): Bill Ackman's Pershing Square Capital Management built an $8 billion position in pharmaceutical company Valeant, loudly championing the investment. Between 2015 and 2016, Valeant's stock collapsed from over $260 to under $30—a decline of approximately 90%. Investors who followed Ackman into this "sure thing" lost devastating amounts of money.

The biotechnology sector's volatility: The iShares Biotechnology ETF (IBB) illustrates healthcare sector behavior. From 2013 to 2015, it gained approximately 175%. Then from July 2015 to February 2016, it declined about 38%. From 2020 to 2023, it experienced another roughly 50% decline from peak to trough. Growth healthcare stocks amplify these movements further.

13F filing delays matter: By the time investors learn about institutional positions through required filings, 45-90 days may have passed. Research published in the Journal of Financial Economics found that copycat strategies based on 13F filings generated significantly lower returns than the original investors achieved because of this timing gap.

Historical returns of "hot stock" chasers: Studies by behavioral finance researchers Brad Barber and Terrance Odean found that individual investors who traded frequently based on news and tips underperformed buy-and-hold investors by approximately 6.5% annually. The stocks individual investors bought underperformed those they sold by an average of 3.2% over the following year.

The 2021 growth stock boom and 2022 correction: Many high-growth healthcare and technology stocks soared in 2021—some gaining 100% or more—only to crash in 2022. The ARK Innovation ETF, focused on disruptive companies, fell approximately 67% from its 2021 peak. Investors who chased performance at the top experienced devastating losses.

What Smart Savers and Investors Do

Rather than reacting to headlines, disciplined investors follow time-tested strategies:

1. Use the 5% rule for individual stocks: Limit any single stock position to no more than 5% of your total investment portfolio. With a $100,000 portfolio, that means investing no more than $5,000 in Natera or any other individual company. This limits downside risk while still allowing meaningful participation if the stock performs well. Use the [Net Worth Calculator](https://whye.org/tool/net-worth-calculator) to determine your current total portfolio value and calculate the appropriate position size.

2. Understand what you own: Legendary investor Peter Lynch advised investing only in companies you understand. Can you explain Natera's business model? Do you know what genetic testing services they provide, who their competitors are, and why their approach might be better? If not, you're speculating, not investing.

3. Consider low-cost healthcare ETFs instead: Rather than picking individual stocks, many smart investors gain healthcare exposure through diversified funds. The Health Care Select Sector SPDR Fund (XLV) has an expense ratio of 0.09% and holds approximately 60 healthcare companies. The iShares Biotechnology ETF (IBB) provides focused biotech exposure. These reduce single-company risk while capturing sector growth.

4. Dollar-cost average into positions: Instead of investing $5,000 at once, spread purchases over several months—perhaps $1,000 monthly for five months. This strategy reduces the risk of buying at a temporary peak. You can model different scenarios and see the impact of this approach with our [DCA Calculator](https://whye.org/tool/dca-calculator). Historical data shows dollar-cost averaging reduces volatility impact by approximately 20-30% compared to lump-sum investing during turbulent periods.

5. Establish sell criteria before buying: Smart investors decide in advance when they'll sell. Common approaches include: selling half if the stock doubles, setting a stop-loss at 20-25% below purchase price, or rebalancing annually back to target allocations. Having predetermined rules prevents emotional decision-making.

6. Maintain a strong financial foundation first: Before investing in individual stocks, ensure you have 3-6 months of emergency savings (the average American needs approximately $15,000-$30,000), are contributing enough to capture any 401(k) employer match (typically worth 3-6% of salary), and have paid off high-interest debt above 8%.

Common Mistakes to Avoid Right Now

Mistake #1: Assuming billionaires can't be wrong

Tom Steyer's net worth exceeds $1.5 billion, but even billionaires make investment mistakes. Warren Buffett lost approximately $11 billion on Kraft Heinz. Carl Icahn lost billions on Hertz before its bankruptcy. Steyer himself saw some Farallon investments decline significantly during market corrections.

Institutional investors also have different time horizons, risk tolerances, and financial cushions than individual investors. What makes sense for a billionaire who can absorb a 50% loss without lifestyle impact doesn't necessarily make sense for someone saving for retirement or a down payment.

Mistake #2: Ignoring position sizing

When excitement builds around a stock, some investors allocate far more than prudent guidelines suggest. Investing 20%, 30%, or more of your savings in a single company—regardless of its potential—creates catastrophic risk.

Consider this math: If you invest 30% of a $100,000 portfolio ($30,000) in a stock that declines 50%, you've lost $15,000—15% of your total savings. Recovering from that loss requires a 33% gain on your remaining $85,000 just to get back to even.

Mistake #3: Chasing past performance

Natera's stock rose approximately 80% over the past year. Many investors see this and imagine similar gains continuing. However, research from SPIVA (S&P Indices Versus Active) consistently shows that past performance has minimal predictive value for future returns. Stocks that outperformed over the previous year underperform the market the following year approximately 50% of the time—essentially a coin flip.

Mistake #4: Neglecting your existing financial plan

Headlines about hot stocks can tempt investors to abandon carefully constructed portfolios. If you've determined an appropriate asset allocation—say, 80% stocks and 20% bonds diversified across sectors—chasing a single stock based on news disrupts that balance.

Behavioral finance research shows that investors who stick to their plans typically outperform those who frequently adjust based on market news by 1.5-3% annually over time.

Mistake #5: Confusing entertainment with education

Financial media exists partly to entertain and generate engagement. Headlines about billionaire stock picks, huge upside potential, and market-beating opportunities are designed to capture attention. Mistaking these stories for investment advice leads to poor decisions.

Action Steps

Here are specific actions you can take this week to apply these lessons:

1. Calculate your current single-stock exposure (30 minutes)

Log into your investment accounts and identify what percentage of your total portfolio is invested in any single company. Include employer stock in retirement accounts. If any position exceeds 10%, consider rebalancing. Many investors discover during this exercise that they own more company stock from employer plans than they realized.

2. Stress-test your portfolio (15 minutes)

Ask yourself: "If my largest individual stock position fell 50%, how would I feel?" Then calculate the actual dollar impact. If the answer is "devastated" or "I'd have to delay retirement," your position is too large. Adjust accordingly.

3. Review your investment policy statement (or create one)

Write down your investment goals, time horizon, risk tolerance, and rules. Include statements like: "I will not invest more than 5% of my portfolio in any individual stock" and "I will rebalance annually in January." Having written rules reduces emotional decision-making.

4. Research before investing

If Natera interests you after reading this article, spend time understanding the business before investing. Read the company's annual report (10-K filing), review analyst reports from multiple sources, and understand the competitive landscape in genetic testing. Never invest based solely on headlines.

5. Optimize what you can control

While stock prices are outside your control, many financial factors aren't. This week, verify you're contributing enough to capture your full 401(k) match (free money averaging 50-100%)