Whilst the majority of investors are focused on buying shares which they believe will go up in value, there are investors out there doing the very opposite.

Investors that take short positions are borrowing shares to sell on market in the hope of buying them back at a cheaper price in the future. This can be a great investment strategy, especially in a bear market. But it is also a risky one with the potential for unlimited losses.

Because of the risks, short sellers will only take a short position if they have a high conviction that the shares shorted are going to fall. In light of this I believe investors should be wary of investing in shares with high short interest.

Here are the top ten most shorted shares on the ASX as of September 19 according to data provided by ASIC:

  1. Myer Holdings Ltd (ASX: MYR) is the most shorted share on the ASX with 15.4% of its shares held short. It would appear as though the retailer’s recent full year results have failed to convince the market that a turnaround is forthcoming.
  2. Worleyparsons Limited (ASX: WOR) has dropped down to second position after short interest fell week over week. 15.2% of the engineering company’s shares have been shorted, down from 16.3% last week.
  3. Western Areas Ltd (ASX: WSA) has 13.3% of its shares held short. But with nickel prices rising last week, I wouldn’t be surprised to see a significant drop in short interest for the leading nickel producer next week.
  4. Metcash Limited’s (ASX: MTS) short interest has risen for a second week in a row. 12.4% of the wholesaler and distributor’s shares are currently being held short.
  5. Monadelphous Group Limited (ASX: MND) has seen the percentage of its shares shorted rise to 11.1%. Despite the mining services company being one of the most shorted shares this year, its shares have now climbed a massive 39% in 2016.
  6. Bellamy’s Australia Ltd (ASX: BAL) continues to see an increase in short interest. 11% of the organic infant formula producer’s shares are being held short. This is the highest level of short interest this year for Bellamy’s.
  7. Flight Centre Travel Group Ltd’s (ASX: FLT) short interest has dropped again. 10.4% of the travel agent’s share are held short now. I continue to believe this is a sign that the market is becoming bullish on its growth prospects once again.
  8. Cover-More Group Ltd (ASX: CVO) has 9.6% of its shares currently being shorted, down from 10.1% last week.
  9. Alumina Limited (ASX: AWC) still has 9% of its shares held short, despite settling its dispute with US mining giant Alcoa recently.
  10. Blackmores Limited (ASX: BKL) has climbed into the top ten with 8.5% of its shares being shorted. With the market expecting a disappointing first quarter from the health supplements company, I wouldn’t be surprised to see a short squeeze if it performs better than expected.

Whilst investing in the 10 shares above may be a concern right now, these three ASX shares could be fantastic investments today.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget BHP and Woolworths. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

HOT OFF THE PRESSES: Motley Fool’s #1 Dividend Pick for 2017!

With its shares up 155% in just the last five years, this ‘under the radar’ consumer favourite is both a hot growth stock AND our expert’s #1 dividend pick for 2017. Now we’re pulling back the curtain for you... And all you have to do to discover the name, code and a full analysis is enter your email below!

Simply enter your email now to receive your copy of our brand-new FREE report, “The Motley Fool’s Top Dividend Stock for 2017.”

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our https://www.fool.com.au/financial-services-guide">Financial Services Guide (FSG) for more information.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.