Praveen,
I certainly agree that the market doesn't know or care what my average cost is. I frequently see that statement by writers describing the typical novice's approach, selling stocks with small gains, out of fear, they will lose the gains. And holding loser stocks long term, till they get back to where they were bought, so as to avoid taking a loss.
But, I'm talking about accounting here. I buy stocks, because I want to be a long term part owner of the underlying business. I hope to take advantage of the mercurial 'Mr. Market'. If he's depressed, and my stock price falls, I want to buy more. But if he's ebullient, and shoots the price to the sky, I want to take advantage of him, and sell him some shares.
I expend all of this effort and risk losing money, in order to earn a profit. If I sell a stock below my average cost, I raise the breakeven point to earning a profit, even if the price received is better than the LIFO cost of some shares bought earlier. I would only sell shares at a loss, if I no longer believed the underlying business worthy of owning, in which case, I'd sell my entire position.
Now, if the stock had declined, and I bought some shares at a lower price, and it rises, but is still below my average cost, I don't view Mr. Market as ebullient, just more rational. He's got to show me at least a 10% profit, before I'm prepared to label him 'ebullient', in which case, I will gladly fulfill his desire to acquire more shares.
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