That is one way of looking at it when one "averages down" on a...

That is one way of looking at it when one "averages down" on a stock.

Another way of looking at this is to ask oneself..."How much extra cash have I put into this stock in order to average down?"

An even bigger consideration is to ask oneself..."Is this a penny stock or a proven blue chip that I'm averaging down on?"

To summarise... by "averaging down" - one could easily end up holding the majority of the stock...but unless they are very confident of the future performance of the underlying company - they could easily end up insolvent.