The Story:
Once upon a time, there lived an old man on the northern frontiers of China. One day, his horse disappeared. His neighbors came to comfort him. But the old man was not at all upset. He said his loss might turn out to be a good thing. And he was right. A few months later, not only did his horse find its way back, it also brought with it another horse, one that was even better. His neighbors came around again, this time to congratulate him on his gain. But again, the old man viewed the situation differently, and said that this "good luck" might bring about misfortune in the end. Strangely, he was right again. A few days later, his son fell from the new horse and broke his leg. However, as a result of the accident, his lame son was not conscripted to fight in the war and remained with his family.

Explanation:
Nowadays, people refer to the idiom when comforting someone who has experienced ill fortune. However, although it does imply that bad luck can sometimes transform into good luck, the reverse is also true; good luck can sometimes give rise to bad.