What does the butterfly effect mean? What do you mean by not putting all your eggs in one basket?

Butterfly effect A small butterfly flapping its wings over a certain place disturbs the air, which may lead to a storm in the distance for a long time. This is a metaphor. Long-term large-scale weather forecast often leads to unpredictable and serious consequences because of a little tiny factor. Small deviations are inevitable, which makes long-term weather forecast unpredictable or inaccurate. This is like playing billiards, chess and other human activities, which are often "a minor mistake" and "an careless move"

Long-term large-scale weather forecast is the observation, calculation and analysis of the complex system of the earth's atmosphere. It is influenced and restricted by many factors that change at any time and place, such as the temperature, humidity and air pressure of the earth's atmosphere. It can be considered that the prediction of its comprehensive effect is difficult to be accurate and the butterfly effect is inevitable. Our human research objects also involve other complex systems (including "natural systems" and "social systems"), and their internal constraints are also complex. Its "corresponding butterfly effect" is inevitable. "Today's butterfly effect" or "generalized butterfly effect" is not limited to the original Lao Lun butterfly effect, which is only used for weather forecasting, but is synonymous with all complex systems being extremely sensitive to initial values, which means that for all complex systems, under certain "threshold conditions", their long-term and large-scale future behaviors are extremely sensitive to small changes or deviations of initial conditions.

Don't put all your eggs in one basket. This is an asset allocation and a key investment concept. What he means is: treat your property as a basket of eggs-and then decide to put them in different places: one basket and the other ... if you break a basket, at least you won't lose everything.

Markowitz believes that focusing on individual investments is far less important than monitoring the overall return of a portfolio. There may be only a low correlation between different asset classes, such as stocks and bonds. In other words, their performances have little to do with each other. If you have a lot of investments, you will see that their performance varies greatly from year to year. For example, in some years, stocks performed poorly and bonds performed well, just like in 2005. This year, on the contrary, we have seen a crazy stock market and a forbearing bond market.

Put your eggs in different baskets, the main purpose is to spread your investment into asset classes with low correlation, so as to reduce the risk of overall income.

The above sentence may be obscure, but I believe most readers will feel the following example.

If we want to conclude the theory of putting eggs in multiple baskets, we will start from the perspective of "fragile eggs", that is, risk: if you put all your property in one asset (such as a real estate or a company's stock), then you will become extremely vulnerable to market fluctuations. Just like the painful lesson of 1997 after the financial crisis-many public real estate and stocks in Asia have depreciated sharply, and those who put all their investments on them have suffered heavy losses.