The Eagles were winning 1-0 at the break thanks to Craig Cathcart's own goal, but would see that quickly turned around thanks to two goals in seven minutes as Cathcart gained some retribution before a fine volley from Tom Cleverley settled matters in south London.
Hodgson said, “It's tough to lose any game, especially at home and it's made tougher that we've been doing quite well lately. I was hoping that this would be the chance for us to get that elusive third victory that would have lifted us to a much more comfortable place in the table.
“We were unable to get it, and when that happens there is no other emotion that I can display other than the obvious one of feeling very sad that we couldn't do it."
He added: “If you want to win games, then you have to take the chances that come your way. Watford must be comfortable in that respect because they hit the post twice and had one cleared off the line and chances to score their two goals. We perhaps weren't as effective and only scored one goal, but that's what football is.
“There aren't many games this year where I have thought we were outplayed or didn't deserve to win, but there have been games like this where the game could so easily have gone either way and you get questions about regrets or frustrations. I don't think I could have asked for a lot more from the players; we certainly didn't lose the game because there wasn't the desire to win it."