It was a game on a knife edge, won by a 54th-minute goal by Franck Moussa, his seventh of the season, when Walsall goalkeeper Richard O'Donnell could only deflect Leon Clarke's header to the midfield man following a Carl Baker corner.
"I thought we were the better team with the exception of the first 30 minutes when we started badly and struggled a bit," Smith said.
"But we got better as the game went on and if it was not for a poor goal from a set-piece we should have got something. And we should have had a penalty when Ashley Hemmings was brought down by their goalkeeper.
"I have told my lads the only disappointment was the result. Not the performance. Coventry are a very good team and could make the play-offs despite their 10-point deduction. They still have some Championship players.
"We have had a fantastic week, taken three steps forward but one step back.
"Its disappointing to have lost because it's a local derby. Coventry are the best team we have played in terms of what they do without the ball."