Explain what Pip meant by, “I was too cowardly to do what I knew to be right, as I had been too cowardly to avoid doing what I knew to be wrong.”

Pip had been threatened by Magwitch the escaped convict to get him some food. Pip steals "the savoury pork pie" which his sister had prepared and conserved for the Christmas lunch and gives it to Magwitch. In Ch.5 Pip's sister at the end of the Christmas lunch is about to go and get the pie when the soldiers who have come to capture the escaped convicts arrive. Thus no one gets to know that Pip has stolen the pie and given it to Magwitch. However at the end of Ch.5 after Magwitch  is caught he defends Pip by saying that it was he who stole the pie:

"`So,' said my convict, turning his eyes on Joe in a moody manner, and without the least glance at me; `so you're the black- smith, are you? Then I'm sorry to say, I've eat your Pie.'"

Pip means to say that, if he hadn't been a coward he should have immediately told every one that it was he who had stolen the pork pie and not Magwitch;  but if he had done that he would have been immediately arrested as a thief  and sent to jail and perhaps even sentenced to be hung.

In Ch.6 Pip feels guilty that he has not confessed to Joe his only confidant and buddy the truth about the missing pork pie. After much soul searching and an intense mental debate Pip concludes that it would be best that Joe should not know all the exact details for fear that Joe might from henceforth always suspect him if something went missing:

That, if Joe knew it, I never afterwards could see him glance, however casually, at yesterday's meat or pudding when it came on to-day's table, without thinking that he was debating whether I had been in the pantry. That, if Joe knew it, and at any subsequent period of our joint domestic life remarked that his beer was flat or thick, the conviction that he suspected Tar in it, would bring a rush of blood to my face.

So, Pip finally decides not to reveal to Pip that it was he who actually stole the pork pie and had given  it to Magwitch. Pip says that he has been a coward by not revealing the truth even to his only confidant Joe:

In a word, I was too cowardly to do what I knew to be right, as I had been too cowardly to avoid doing what I knew to be wrong. I had had no intercourse with the world at that time, and I imitated none of its many inhabitants who act in this manner.

This incident marks a very important stage in the psychological and mental growth of Pip the child who gradually matures into an adult. The innocent and naive child Pip gradually learns to tell lies by learning intuitively the false and hypocritical value system of the experienced adults around him. No one teaches him to tell lies. His real life  experiences as a result of his encounters  with the adults around him cure him of his innocence and gullibility and make him a liar leading him to conclude:

Quite an untaught genius, I made the discovery of the line of action for myself.