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This article originally appeared on Morningstar.co.uk.

Investing in equities means buying shares in a publicly-listed company, which essentially amounts to owning a part of that company.

Although the words "financial statements" and "accounting" send cold shivers down many people's backs, this is the language of business - a language investors need to know before buying into a company's equity.

The beauty is you don't need to be a banker to understand the basics of the three most fundamental and important financial statements: the income statement, the balance sheet, and the statement of cash flows. The financial statements are windows into a company's performance and health.

Once you think you've found a superior company, you next need to work out whether it's attractively priced - you don't want to buy shares in a good company at an expensive price.

The leg work involved in researching individual companies often puts would-be investors off and the risks associated with putting all your eggs in one (or a few) baskets can also push investors towards equity funds rather than individual equities.

Still, if you want to add specific equities to your investment portfolio, we've developed a strategy at Morningstar that has five parts:

1. Look for wide-moat companies

Companies with wide economic moats reside in profitable industries and have long-term structural advantages versus competitors. These companies have predictable earnings, returns on capital higher than the cost of capital, and long-term staying power.

The beauty of a wide-moat company is that the odds are pretty high that the actual intrinsic value of the firm will increase over time, leading to higher shareholder value. In other words, time is on your side with these companies.

By contrast, companies with no economic moat generally destroy shareholder value over time - when you buy a no-moat company, you're making a speculative bet that the stock will bounce up just long enough for you to sell it. That's a very tough game to play, and generally only seasoned pros should attempt it.

We recommend maintaining a watchlist of wide-moat companies that you consistently monitor for any opportunities.