What to do when a thought comes up while meditating

From the meditation podcasts I have heard when a thought comes up acknowledge it by saying "thinking" and then try to gently return back to your breath. There is something else I tried experimentally. In this case I was not noticing my breath, but was noticing my thoughts. I did this by asking, "what's the next thought" and tried to observe my thoughts mindfully. Obviously more thoughts arose, but it felt like I was still practicing mindfulness. And it seems easier to do this type of mindfulness while in an environment with a lot of distractions. (Walking, running, etc.) I wanted to know if it is ok to do this? Also, are there other methods for handling my thoughts?