Forest gave up the chance to go outright second on the Championship table, conceding a soft 20th minute goal to end an unbeaten run of 10 games and give the Iron their first win at home in five-and-a-half months.
Davies said it was a loss his side should not have endured, especially with the amount of possession they enjoyed.
"You'll have seen this Scunthorpe team at Cardiff and they lost to a late goal and I said before the game they were scrapping for everything," he said.
"We've given a goal away from naive play, stupid play, and we talked about that before the game.
"Then we spend the rest of the time controlling possession and having many chances, but it just seemed as if it was one of those nights where it didn't quite go for us.
"We hit the bar as well, but in the end the opening 35 minutes or so really cost us dearly because we did not come out and play to the surface or the surroundings.
"What is required between now and the end of the season is a mental character and that is what will decide whether you win or lose things.
"We have got to realise that tonight is a missed opportunity."