When we think about selling a stock, the first thing we do (i'm pretty sure all of us does the same thing) is to look at the records to see what price we paid for the stock. We may sell if there is a good profit. If it is a loss, most of us would rather wait than to take the loss. There is an undying belief that as long as we hold on to the stock, the loss is not incurred. Though we logically understands that this is totally naive thinking but for most investors (including yours truly), the HOPE that the price might come back up at least enough to break even is too strong to let go. After all, we didn't invest in the market to lose money.
The question is, what if the price keeps dropping ?. Should we buy more (get stuck with more shares) to average down ?. There are several key factors to consider before putting more money into the stock. Firstly, we need to know what triggers the initial investment. Is it due to fundamental or speculative reason. It will be more risky if it is the latter as most speculative counters are just hit and runs (if you know what i mean). But then again, fundamental counters can also be speculative. A good judgmental call would be, would you buy the stock at the current price if you are NOT holding any ?. If the answer is a firm NO, then there should be no reason to put more money into averaging down. Cost averaging is considered a good long term investment practise (more so if the price drop is due to broad market forces and not company performance related) for quality/blue chip stocks as you are buying it at a discounted value. A good stock will always rebound from its low, it is just a question of time.
There is an old investment saying "take your losses quickly and profits slowly", yet most investors get emotionally confused and take their profits quickly and their losses slowly. Its in the case of "once beaten, twice shy".