The Reds succumbed to their first Premier League loss of the entire 2019-10 campaign at Vicarage Road on Saturday, with an Ismaila Sarr double and a Troy Deeney strike earning the hosts a comfortable victory.
Jurgen Klopp's men hadn't been beaten in 44 games prior to their trip to Hertfordshire, and were on course to emulate Arsenal's famous 'Invincibles' squad.
Liverpool were also bidding to become the first side to win 19 successive top fight matches, but Watford produced a superb display to earn a vital three points in their ongoing bid to avoid relegation.
Lovren played the full 90 minutes against the Hornets and struggled to get to grips with Deeney and Sarr, having replaced the injured Joe Gomez in Klopp's starting line up.
Liverpool are still 22 points clear at the top of the Premier League and four wins away from winning the title, but Lovren admitted that the squad were left feeling "ashamed" after their latest display.
"It's strange, to be honest. It hurts, really hurts," he said. "A defeat is a defeat but, you know, this was strange. Maybe it is a wake-up call for us.
"It feels like someone has hit us in the face - and we deserved it. We feel a bit ashamed because there's no excuse for that performance.
"It really hurts because from the beginning to the end we were missing all the things we usually have."
Lovren went on to discuss Liverpool's lack of aggression, before insisting they will have to do "much better" in order to finish the season strongly.
"The manager looked at us when he came into the dressing room and I think he knows we are missing something," he added.
"I think it was about the aggression when we lost the ball and not recovering it as quickly as possible.
"Usually we do it without a problem but against Watford, they were always winning the second balls - and that doesn't usually happen with us.
"We need to look at this and realise that we have to do much, much better."
Liverpool will be back in Premier League action four days later, with Bournemouth set to arrive at Anfield.